Cooling product makers face near-term concerns as recovery hopes fade

Outlook for listed consumer durable majors may stay muted

After a weak September quarter, the near-term outlook for listed consumer durable majors in the cooling products space is expected to be muted. This is given the surge in commodity prices, high inventory and ongoing advertising spends.

 

Barring a couple of exceptions, most companies reported a sharp fall in sales growth over the year-ago quarter.

 

The only saving grace for listed companies is that valuations are reasonable and could be a factor if there is a pick up in demand during the next summer season.  

 

The decline was led by the air conditioner segment with key listed players reporting a revenue fall of 10-23 per cent.

 

The drop was on account of high channel inventory and goods and services tax (GST) transition period which led to deferment of purchases.

 

Achal Lohade of Nuvama Research said, “Large and small appliances posted one of the worst Q2 results. The demand scenario continues to be tough in general, although low inflation and a robust monsoon are keeping medium-term recovery hopes alive.”

 

In the cooling products space, the brokerage maintains a cautious view on Symphony and Voltas and its preferred pick in this space is Havells. 

 

The multiple headwinds not only impacted the revenues but also weighed on margins. 

 

Voltas reported a sharp decline of 23 per cent in the unitary cooling products segment losing market share. Its segment margins slipped by 11 percentage points year-on-year (Y-o-Y) to an all-time low of -3.8 per cent. This is owing to higher marketing support in the form of sales-out scheme, subsidised installation and consumer finance, along with under absorption of fixed costs at its new facilities. 

 

Lloyd (Havells owned) revenue declined 19 per cent with a segment margin of -20.7 per cent, impacted by under absorption of fixed costs and higher consumer offers.

 

On the other hand, Blue Star’s cooling products segment performed better than the industry, gaining market share in the room air-conditioners (RAC) category.

 

Segment margin fall was restricted to 90 basis points (bps) to 6.2 per cent aided by the commercial refrigeration category. 

 

There does not seem to be any respite for the sector in the near term, especially given rising commodity prices and Bureau of Energy Efficiency (BEE) norms transition.

 

Chirag Muchhala and Sankalp Vaity of Centrum Research, said, “With rising copper and aluminum prices, the ability of firms to take price hikes and protect margins is a key monitorable. In addition, the upcoming BEE norm change from January 1, 2026, and its impact on primary sales in Q3FY26 will also be keenly watched.”

 

While the March quarter (Q4FY26), could see flattish growth given the high year-ago base, most brokerages expect a meaningful recovery only by Q1FY27.

 

Electronic manufacturing services peers expect production to remain stable in December while CY26 is expected to be healthy given the order book on the back of ratings change.

 

BNP Paribas Research believes that a surge in commodity prices, high inventory level for summer products (RAC, coolers, fans) and continued trade/marketing support are concerns in the near term. 

 

Nirransh Jain of the brokerage, however, points out that the distressed valuation of B2C peers suggests a favourable risk-reward, going into the next year.

 

The brokerage is betting on Havells to play the sector’s recovery and consumption rebound and Whirlpool as a re-rating candidate once its stake sale cloud clears.