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Intense summer forecast signals robust demand outlook for cooling products

ICICIdirect Research 22 Feb 2023 DISCLAIMER


Consumer durables companies are likely to witness strong demand of room ACs in Q4 amid expectation of early onset of summer. 


India Meteorological Department (IMD) has issued warning about early arrival of heatwave in most part of India due to anticyclonic circulation in Gujarat. It has also warned about higher-than-normal temperature in many parts of the country in the coming summer. The extended summer season coupled with low inventory at channel partners will boost demand of air conditioners from Q4FY23 onwards. We believe, leading AC brands such as Voltas and Havells and contract manufacturer Amber Enterprises will be the key beneficiaries of demand revival of room ACs. 

Our perspective: 

After a weak Q3 performance, consumer durable companies are likely to post meaningful recovery in their Q4 performance led by strong demand of room ACs and benefits of low raw material cost. Despite being on a higher base, Voltas and Havells are likely to report strong volume growth in the range of 15%-18% in Q4FY23 led by build up of fresh inventory at dealer’s level amid expectation of early onset and harsh summer season. On the margin front, companies are likely to witness a sharp recovery in EBITDA margin in the range of 260-410 bps on a sequential basis supported by lower raw material prices and improved operating leverage. Under our CD coverage we prefer Havells considering former’s market share gains and aggressive expansion plans (of Rs 800 crore in FY23) to expand product portfolios in FY23. We believe, robust Balance sheet condition and focus on improving profitability of Lloyds business makes Havells an attractive stock at current valuation in the FMEG space.

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