ICICI Securities has said it is bullish on consumer durables goods stocks, with Havells as its top stock pick in the sector, due to the growth opportunity in the medium-long term. “Considering the strong return ratios, healthy growth potential and low penetration levels, we remain structurally positive on white goods and durables sector,” the brokerage firm said in the note.
White goods makers have found a way to tap more consumers with multiple brands. Most consumer durable companies have introduced new brands by way of acquisitions or new launches, improving the market shares with sub-segmentation, the brokerage firm said in a research note. Such new brands are helping white goods companies to tap customers across income levels and across regions in India.
Havells has a ‘Buy’ stock rating from ICICI Securities, having created a portfolio of brands namely Havells, Standard, Rio and Lloyd. Other companies have also come up with new brands, either through acquisitions, or via their own launches.
Crompton acquired ‘Butterfly’ to expand into kitchen appliances; Whirlpool bought ‘Elica’ to enter into premium kitchen appliances; and V Guard acquired ‘Sunflame’ to expand into kitchen appliances. On the other hand, Polycab introduced its Etira brand for rural and value-for-money customers; Bajaj Electricals launched Nex with a premium and luxury products range; and TTK Prestige launched Judge for value-for-money customers.
Product portfolio expansion, margin protection, market expansion
Expansion of product portfolio, acquisition of customers across income levels and across regions is the expected resultant of the sub-segmentation which will in turn, improve the market share in general of the durables sector companies. Further, the companies having multiple brands would find it easier to manage, maintain, or even improve margins in case of raw materials volatility, said the ICICI report.
However, there are downside risks on consumer durables stocks, such as irrational competition due to reduced general consumption demand, and inflation in input prices. On the other hand, better-than-expected gross margins due to correction in input prices may surprise on the upside, said the note.