Demand pick up key for further gains in consumer electricals space

The consumer electricals segment had a mildly disappointing performance in the third quarter of financial year 2025 (Q3FY25) due to weak consumer sentiment in December.

 

Elevated advertising and promotion (A&P) spends and negative operating leverage squeezed operating profit margins. Rebound in demand for cables led to growth for Polycab though high channel inventory was negative. 

 

Fans registered low-single digit growth, while kitchen appliances faced low demand, and low LED prices adversely impacted lighting. Stabilisers & UPS performed better, driving growth for V-Guard, while improvement in penetration aided double-digit growth for Eureka Forbes. Solar pumps demand is driven by government schemes, but delayed onset of winter impacted sale of water heaters.

 

Demand was healthy in Oct’24 due to festival season but softened later with a small surge in late Dec’24 due to channel filling for room air conditioners or RACs, refrigerators and fans. Premium range outpaced economy range. Durables outpaced the consumer electricals segment.

 

The product categories which registered double-digit growth were RAC, cables and pumps. Product categories which witnessed single digit growth were fans, wires, lighting, small appliances, refrigerators and washing machines. Cables saw double digit volume growth while wire sales were impacted by de-stocking and lower copper prices.

 

TPW (table/pedestal/ wall) fans (25 per cent of market) grew in double digits. RAC saw healthy double-digit growth on a low base while commercial refrigeration growth was subdued. Washing machine and refrigerator sales were soft. 

 

Bluestar saw 25 per cent revenue growth while Polycab revenue rose 20 per cent and Voltas was up 18 per cent. Havells, Whirlpool, IFBI grew between 8-11 per cent. Crompton saw mid-single-digit growth.

 

Among durables firms, gross margin expansion was good for Voltas and Whirlpool, up 180 basis points or bps year-on-year (Y-o-Y) each.

 

It was modest for Bluestar (up 20 bps Y-o-Y) and flat for IFB Industries. The aggregated operating profit margins of durables firms grew 230 bps Y-o-Y to 6.4 per cent (expansion across 3 companies). Among electrical firms, gross margin expanded by 80-210 bps Y-o-Y, except for Polycab. Aggregated operating profit margin of electrical firms rose 40 bps Y-o-Y to 10.4 per cent.

 

Managements are optimistic for cooling product sales as Q4fY25 is a lead-in to summer demand. Improvement in broad-based demand and rural uptick will be key for budget/economy products. The impact of commodity cost volatility and rupee will need monitoring and could impact both pricing and margins across categories.

 

Exports have seen a pickup (up Y-o-Y and up Q-o-Q) for cable and wire firms. Companies indicated strong growth expectations due to demand arising from power transmission and distribution, real estate, infrastructure and data centres.

 

Small appliances (home + kitchen) grew at a modest rate. Havells continues to outperform peers. Margins remain slightly depressed for most given investments (A&P, distribution fronts) and intense competition. In large appliances, demand was steady, with strong primary sales in RAC (largely channel filling). Voltas and Whirlpool gained market share. There are concerns around compressor availability and is a key variable to monitor.

 

Valuations have reduced post the recent correction and are below historical averages in many cases. Analysts see target prices offering 20-30 per cent upside if the demand cycle improves. Crompton, Polycab and Eureka are top picks in terms of growth potential and product range compared to respective historical valuations. Voltas has pushed aggressively for growth which has affected margins and could be due for a re-rating if demand picks up while it holds or improves market share.