With mercury rising, analysts foresee summer surge for consumer durables

IMD forecasts that most parts of the country will experience hotter-than-average temperatures from March through May, leading to an uptick in the frequency of heatwave days

Shares of consumer durables companies have generated mixed returns on the bourses thus far in calendar year 2024 (CY24) as investors assess demand recovery trends in the sector.

Except for Blue Star and Voltas, whose shares have rallied 34.3 per cent and 6.8 per cent, respectively, aided by valuation and operational performance support during the period, all other consumer durables shares have declined year-to-date in CY24, shows ACE Equity data.

Hindware Home Innovation, Orient Electric, Crompton Greaves Consumer Electricals, Whirlpool of India, Symphony, and Bajaj Electricals have tumbled in the range of 2.6 per cent to 27.1 per cent as against a 0.4 per cent addition in the benchmark National Stock Exchange Nifty 50 and 0.9 per cent in the Nifty 500.

Analysts, however, expect the scorching summer this season to improve the fortunes for the pack over the next three to six months.

According to Praveen Sahay, a research analyst at Prabhudas Lilladher, soaring temperatures typically have a positive impact on the sales of seasonal products like room air conditioners (ACs) and fans.

“The India Meteorological Department (IMD) has predicted above-normal temperatures across the country. Given the low geographical penetration of ACs, sales will see a bump up in the April-June quarter (Q1) of 2024-25. To some extent, demand for fans will also go up,” he added.

India’s peak power demand is projected to increase by at least 7 per cent year-on-year in CY24, reaching 260 gigawatt, based on forecasts by the Central Electricity Authority, the governmental think tank focused on the electricity system’s development.

Last month, meanwhile, was the warmest February on record globally, according to the National Oceanic and Atmospheric Administration, a US government-backed environmental research body.

With the monthly temperature 2.52 degrees Fahrenheit (1.4 degrees Celsius) above the 20th-century average of 53.8 degrees Fahrenheit (12.1 degrees Celsius), it was the ninth straight month of historic high temperatures across the planet, the agency said.

Back home, IMD, too, forecasts that most parts of the country will experience hotter-than-average temperatures from March through May, leading to an uptick in the frequency of heatwave days.

“Cooling products like coolers, ACs, and fans, thus, may see peak sales from March through May. As a result, the fourth quarter (Q4)/Q1 may see strong quarters for consumer durables companies. Early signs indicate that this year’s summer season could be exceptionally strong due to the early arrival of hot weather. Thus, we anticipate strong performance across the cooling product range,” said Anil R, a research analyst at Geojit Financial Services.

Near-term pain points persist

Channel checks across sectors suggest the first half of Q4 of 2023-24 (FY24) was not too promising as demand remains weak in the business-to-consumer segment with no immediate signs of green shoots.

According to discussions held at Kotak Institutional Equities’ Chasing Growth 2024 conference, durables firms selling fans have not fully passed on the higher costs associated with the transition to new energy efficiency norms, thereby impacting profitability.

In the room AC segment, growth is expected to be sluggish owing to heavy channel-filling done in the second/third quarter of FY24.

Investment strategy

Against this backdrop, Anil R of Geojit Financial Services believes the ongoing correction in the market is a good opportunity to add related stocks to one’s portfolio. He has a ‘buy’ rating on Havells, ‘hold’ on Voltas, and ‘accumulate’ on Symphony.

Global brokerage Morgan Stanley, meanwhile, has upgraded Voltas to ‘equal-weight’ from ‘underweight’, raising the target price to Rs 1,160 from Rs 760.

“IMD expects most parts of India to experience above-normal maximum temperatures this summer. This will drive stronger AC demand. However, margins for the company may not improve as competitive intensity remains elevated,” it said.