Analysts see more upside in consumer appliance stocks as temperatures soar

White goods stocks: With the mercury currently on the boil, analysts remain bullish on the sector as they see more upside over the near-term and advise investors to pick stocks selectively

Select stocks of consumer durable companies, especially, makers of summer appliances such as air conditioners (ACs), air coolers, refrigerators, fans among others have been on a swift rise recently in anticipation of strong demand for cooling products this summer. 

On a year-to-date basis, Voltas, Havells India, Symphony, Blue Star and PG Electroplast have gained 6-27 per cent versus a 2 per cent and 3 per cent decline in the BSE Sensex and BSE Consumer Durables indices. 

With the mercury currently on the boil, analysts remain bullish on the sector as they see more upside in the shares over the near-term and advise investors to pick stocks selectively. 

“We expect good volume growth for consumer appliances like ACs, air coolers, refrigerators, fans and stabilisers with demand to be led by rising temperatures across the country. There is also a prediction of a strong summer, which has led to most companies ramping up their production capacities. We believe there is still 10-15 per cent upside left for the stocks. Our top pick is Blue Star and we expect Symphony to post strong domestic volume growth this summer but we remain cautious on its overseas business,” said Khadija Mantri, Associate Vice President-Research, Sharekhan. 

The India Meteorological Department (IMD) on Tuesday issued a heatwave alert to parts of north, east, central India. 

Though the agency has predicted a 'normal' monsoon in 2023, Skymet expects the monsoon to be sub-par as El Nino is likely to set in over the second half of the monsoon season.

Besides, even though the overall consumer sentiment was muted in the January-March quarter (Q4FY23), especially in rural markets on inflation concerns, and unseasonal rains in March that dampened momentum for seasonal products like ACs and coolers, distributors have remained optimistic about a demand pick-up over April and May, said a report by Axis Securities.

Industry executives also confirm that demand for air conditioners and refrigerators has picked up over the past week. The Consumer Electronics and Appliances Manufacturers Association (CEAMA) expects the industry to witness an increase of 15-20 per cent this summer in the refrigerator and air conditioner sales. 

That said, experts are constructive on the space even from the long term given the low penetration levels of white goods in Indian households. 

“High temperatures have a favourable impact on demand for seasonal products including consumer durables. This also acts as a trigger for increasing penetration levels, which are currently abysmally low. Less than 7 per cent of Indian households have ACs, while this is 40 per cent for refrigerators, it is still below global benchmarks. Hence, we believe that the entire space is a multi year structural growth opportunity, which will also have tailwinds from declining commodity  prices. Since this is a consumer facing sector with a long runway for growth, valuations are likely to remain elevated”, said Sandip Bansal, Associate Director, ASK Investment Managers. 

In a Q4 result preview, Achal Lohade and Vineet Shanker of JM Financial said that the industry remains optimistic on demand recovery in the coming quarters amid stabilising costs, notwithstanding near-term pain due to weak consumer demand, fans’ energy rating transition and concerns of a weak monsoon.

“We remain positive from the medium- to long-term perspective given macro tailwinds, low penetration in some categories, and category expansion opportunities. Our top picks are Bajaj Electricals and Havells India,” they wrote. 

BNP Paribas said it prefers white goods to cable companies as it believes current valuations offer an upside. Its top picks are Havells and Whirlpool, while Voltas is its preferred play for the upcoming summer.