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Ideas for Profit: Beat the heat with these cool stocks

By Krishna Karwa


Krishna Karwa

Moneycontrol Research

After a pleasant winter, India is bracing itself for the long and scorching summer. The Indian Meteorological Department’s recent forecast suggests that maximum temperatures will be markedly above normal (in varying degrees) in most regions across the country with passage of time.

However, the rise in mercury levels provides a good opportunity to some companies. Here are a few stocks that investors may want to consider to tackle the heat:-

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White goods

Amber Enterprises 

Amber, one of the largest original design and equipment manufacturers for renowned AC (air conditioner) companies in India, is likely to benefit immensely because AC brands are increasingly preferring asset-light expansion by outsourcing a major chunk of their manufacturing processes to third-party suppliers.

Blue Star

Blue Star’s wide range of products such as ACs (residential and enterprise), commercial refrigerators (mainly for dairy and ice cream businesses), and air coolers will gain momentum. Introduction of new product variants and increased focus on in-house manufacturing could augur well for the company, too.

IFB Industries

IFB, a well-known consumer durables company, is taking steps to scale up manufacturing and supply chain processes in connection with home ACs (split and inverter). Moreover, the company is foraying in the refrigeration space from H1FY19.

Johnson-Controls Hitachi Air Conditioning India

Hitachi, amongst the leading AC brands in India, aims to capitalise on the structural change in demand for premium ACs, especially the inverter ones. The company is targeting 10-15 percent growth over the next three years.

Voltas

Despite stiff competition, Voltas has been able to gain market share in the room AC category without denting its margins. A narrowing price gap between inverter and non-inverter ACs, coupled with favourable volume growth in the air-coolers market in 9MFY18, strengthens the brand’s prospects.

Whirlpool of India

A widespread dealer network and innovative product launches (in case of refrigerators) would enable Whirlpool to tap a greater chunk of the underpenetrated consumer durables market in India. The company, on similar lines as it peers, is bullish on the demand scenario for inverter ACs in due course.

Fan and air cooler manufacturers

Bajaj Electricals

Bajaj Electricals, by virtue of its store network and emphasis on the RREP (Range and Reach Expansion Programme), hopes to cash in on the increase in demand for fans and room coolers, primarily in markets where price sensitivity is greater.

Crompton Greaves Consumer Electricals

Crompton’s impetus towards air coolers (for the mass market), leadership position in the high-value fans market, and attempts to increase the retail touch points (from nearly 1 lac to over 1.5 lac) through the go-to market programme (to facilitate improved product visibility) should bode well for the company.

Havells

Havells, in addition to its top-end fans and air coolers, is making its presence felt in the AC domain through the ‘Lloyd’ brand in multi-brand outlets across India. Periodic introduction of products with new features, extensive marketing, a strong network, and a robust brand appeal give the company a distinct edge.

Symphony

Amongst organised players, Symphony commands roughly 50 percent of the air coolers market share in India. Going forward, tailwinds such as GST transition (from unorganised units to tax-compliant ones), an asset-light business, and a cash and carry model for sales will be advantageous for the company.

FMCG companies

Emami

Emami has a noticeable portfolio of summer products (Navratna Oil & Talc), which, in our estimates, constitute around 28 percent of total revenue. The company could be a key beneficiary of the growth uptick in rural areas (50 percent of sales). The management observed good traction in eastern Uttar Pradesh lately.

Manpasand Beverages

Manpasand Beverages’ (owns brands such as MangoSip, Fruits Up, Manpasand ORS, Pure Sip) near-term growth is primed by capacity and distribution expansion. The company’s 35 percent volume growth in Q3FY18 was aided by a distribution tie-up with Parle, among other factors. The company started with a distributor/outlet mix of 150/30,000 in phase 1 and is expected to ramp up the same to 1,000/0.5 million by March 2018.

Valuation overview

From an investment perspective, the short-term growth prospects of most white goods and consumer electrical companies already seem to be discounted in the stock prices.

Nonetheless, the current market volatility may provide an interesting opportunity to accumulate these stocks given their promising moats.

The valuations of both FMCG stocks appear reasonable. Consequently, investors may consider these for accumulation as well.

For more research articles, visit our Moneycontrol Research Page.