BLOG
Worst behind; ECD companies to shine again amid easing inflation
What's Buzzing
Electrical consumer durable (ECD) companies are expected to see a sharp margin recovery amid easing inflationary pressure and demand recovery in FY24.
Context
ECD companies were underperformers in the last one year, mainly due to slowing rural demand and pressure on EBITDA margin (H1FY23 EBITDA margin were down in the range of ~200-400 bps YoY) amid high inflation and an unfavourable base. This led to a muted price performance of ECD companies in the last one year. Now, the price of key input such as polymer & copper have fallen in the range of 20-50% (since the start of FY23). This will bring much needed relief to ECD companies, especially in the period of rising competition. Lower inflationary pressure and intact structural growth themes are expected to drive revenue growth for ECD companies.
Our Perspective
As raw material prices are falling back to their pre-Covid levels, we see margin expansion kicking in from FY24E onwards. We believe EBITDA margins will expand by ~200 bps YoY to ~13% in FY24E. We also believe ECD companies will post strong revenue CAGR of ~18% over FY22-24E supported by intact structural growth drivers. We believe strong growth in the real estate industry (18% CAGR over FY17-30E), growing urbanisation and recovery in rural demand will be key demand drivers for small and large home appliances. ECD companies are, therefore, likely to report strong earnings CAGR of 16% over FY22-24E. Strong earnings CAGR, coupled with their robust balance sheet conditions, are expected to drive the performance of frontline ECD stocks such as Havells India, V-Guard, Bajaj Electricals and can make them shine again in the near to medium term.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
Related content
Blogs
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Articles - Stocks
Advantages and Disadvantages of NPS
It is a long established fact that a reader will be distracted by the readable content of a page when looking at it...
Video
Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.
Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.
Video - Stocks
What is Book Value?
Book Value Explained – Find out what is book value in stocks in this video by ICICIdirect.com.