Consumer Durables

Apr-Jun'21 Earnings Preview

July 6, 2021 1Q marred by Covid; Festival sales hold key
1Q started on an optimistic note with demand momentum sustaining until
mid-April, despite a strong close to March, post which the sentiment was
PL Universe disrupted until May due to 2nd Covid wave. However, June saw some pent-up
demand, as markets opened up. We expect our consumer durables universe
Companies Rating CMP (Rs) TP (Rs) to register high growth rates given 1) favorable base due to complete
lockdown impact 2) delayed monsoon onset to extend seasonal product sales
Bajaj Electricals HOLD 1,050 1,084 window and 3) retention of FY21 market share/ shelf space gains. However,
CC Cons. Elect. BUY 450 454 we expect it to be 75%-80% of 1QFY20 levels. We expect Sales/EBITDA/PAT
Havells India Hold 1,022 1,066 growth of 57%/ 140%/ 175% across our coverage universe. Commodity prices
KEI Industries BUY 721 825 remained in an uptrend with LME spot Copper/ Aluminum prices up by
Polycab India BUY 1,980 1,927 15%/16% QoQ, which are likely to negatively impact gross margins in 1Q22
Voltas Hold 1,015 955 as pricing actions remain inadequate to cover all costs.
Source: PL
We remain structurally positive on BJE, POLYCAB and VOLT, however post
sharp re-rating in past 12 months, return expectations need to be moderated.
We rate CROMPTON and HAVL as our top picks.
Top Picks
 1Q marred (again) by 2nd Covid wave; June witnesses good traction:
Demand momentum witnessed in March sustained until the middle of April
Crompton Greaves Consumer before being impacted by 2nd Covid wave. Even though major part of the
Electricals country was under some form of lockdown in May, situation was not as dire as
LY given relaxation on market activity and e-com deliveries in few states. June
Havells India witnessed good demand traction on opening up of markets.

 Delayed onset of monsoon extends seasonal product sales window:

Seasonal products (RAC, Air Coolers, Fans etc) faced another truncated peak
sales window given 1) 2nd wave led restrictions and 2) low consumer
sentiments. However, progression of monsoon to Northern India (Southern
India onset by 3rd June) delayed, thereby extending sales window.

 Sustainability of demand intensity a key monitorable: Although June

witnessed good demand traction on opening of markets, our channel checks
suggested softening of demand towards the last week. Intensity of pent-up
demand is likely to be weaker v/s LY given 1) commodity inflation led steep
price hikes and 2) much broader and deeper impact of 2nd wave. We shall
keenly watch out for sustainability of demand momentum in coming months.

 More price hikes on the horizon: Commodity prices have continued on an

upward trajectory even in 1Q22 (Copper/Aluminum up 15%/ 16% QoQ). Our
channel interactions indicate that the industry is bracing itself for another 5%-
7% price hike in July (3%-5% in April) across product categories (Fans, white
goods, kitchen appliances etc.). Despite the unprecedented price increase
across categories, price elasticity has been low and there are no signs of a
major down trading from consumers.

 Channel inventory at comfortable levels: With industry witnessing inventory

Amnish Aggarwal
amnishaggarwal@plindia.com | 91-22-66322233
Paarth Gala
paarthgala@plindia.com | 91-22-66322242
filling towards end of March (no sale LY) followed by localized lockdowns,
channel inventory remains higher than LY. However, compared to 2019 it
remains at comfortable levels. Inventory for seasonal products (like Room AC,
Air Coolers, Fans) remains higher than normal. In Wires & Cables, with copper
prices softening in June, channel has turned cautious in stocking inventory
towards month end which can impact primary sales.

July 6, 2021 1
 Consumer Durables

 Organized players to retain market share gains: FY21 witnessed organized

players gaining share at expense of unorganized/ small regional players as
they remained impacted given liquidity constraint & supply chain issues. Even
though unorganized players are slowly inching back, organized players
continue to retain shelf space & consumer mind share captured last year.

Top picks:

 Crompton: We remain structurally positive on Crompton given 1) sustained

market share gains across core categories of Fans/Pumps/LED lights 2) well
defined plan of entering & scaling up new categories (Water Heaters/Air
Coolers/Mixer-Grinders) 3) Double digit LED lighting margins aided by price
stability & cost efficiency and 4) strong balance sheet (FY21 net cash: Rs9bn);
ROE/ROCE of 30.6%/38.4%; dividend payout of 55-60%. We estimate 16.2%
PAT CAGR over FY21-23. Retain BUY with TP of Rs454 (40x FY23 EPS)

 Havells: We believe Havells is well placed to benefit from both industrial and
B2C demand revival given 1) it has most diverse product portfolio within
consumer durables/ electrical space 2) is amongst top 3 players in most
product categories (except Lloyd) 3) Lloyd to benefit from Govt’s Atma-nirbhar
bharat push and 4) has sustained thrust on innovation and premiumisation. We
estimate PAT CAGR of 15.2% over FY21-23E and have Hold rating with TP of
Rs1,066

Q1FY22 Result Preview

YoY gr. QoQ gr.
Company Name Q1FY22E Q1FY21 Q4FY21 Remark
(%) (%)
Sales 9,045 6,077 48.8 12,545 (27.9)
EBITDA 407 -208 (295.9) 716 (43.2) We expect sales to grow by 48.8%. Consumer Products/
EPC to grow by 65%/ 18.9%. Changing mix, reducing
Bajaj Electricals Margin (%) 4.5 -3.4 5.7
interest burden and cost saving measures will help register
PBT 262 -571 (145.9) 765 (65.8) a profit of Rs192mn vs Loss of Rs419mn
Adj. PAT 192 -419 (145.9) 590 (67.4)
Sales 10,808 7,132 51.5 15,153 (28.7)
Crompton EBITDA 1,427 988 44.4 2,248 (36.5) We expect sales to grow by 51.5% with ECD/ Lighting
Greaves segment growing by 45%/ 85%. We expect margins to
Margin (%) 13.2 13.9 14.8
Consumer remain under pressure due to commodity inflation and
Electricals PBT 1,467 988 48.4 2,276 (35.6) estimate 70bps decline. PAT to grow by 48.4%
Adj. PAT 1,094 737 48.4 1,698 (35.6)
Sales 23,969 14,791 62.0 33,312 (28.0)
We expect core segment sales to grow by 60% YoY. Lloyd
EBITDA 3,116 1,309 138.1 5,057 (38.4)
shall post a growth of 70%. Despite commodity inflation, we
Havells India Margin (%) 13.0 8.8 15.2 expect margins to improve by 420bps YoY aided by cost
initiative programs and pricing action, while reduce by
PBT 2,681 860 211.9 4,544 (41.0)
220bps QoQ
Adj. PAT 1,992 633 214.5 3,352 (40.6)
Sales 9,015 7,454 21.0 12,463 (27.7)
EBITDA 947 723 31.0 1,416 (33.1)
We expect sales to grow by 21%. We expect margins to
KEI Industries Margin (%) 10.5 9.7 11.4 remain expand by 80bps YoY aided by higher realizations.
PAT to grow by 45.8%
PBT 707 495 42.7 1,171 (39.6)
Adj. PAT 528 362 45.8 893 (40.9)

July 6, 2021 2
 Consumer Durables

YoY gr. QoQ gr.

Company Name Q1FY22E Q1FY21 Q4FY21 Remark
(%) (%)
Sales 19,267 9,766 97.3 30,374 (36.6)
EBITDA 2,158 575 275.4 4,213 (48.8) We expect sales to grow by 97.3% YoY on a lower base
with Wires & Cables/ FMEG growing by 98%/ 55%. We
Polycab India Margin (%) 11.2 5.9 13.9
expect margins to expand by 520bps YoY owing to higher
PBT 1,772 305 480.2 3,831 (53.8) realizations
Adj. PAT 1,318 239 450.8 2,814 (53.2)
Sales 19,227 12,969 48.2 26,517 (27.5)
EBITDA 1,682 668 152.0 3,307 (49.1)
We expect sales to grow by 48.2% with UCP/ EMPS sales
Voltas Margin (%) 8.8 5.1 12.5 to grow by 63%/ 34.5%. We expect margins to expand by
370bps YoY. We expect JV to report a loss of Rs150mn
PBT 2,062 1,192 73.0 3,430 (39.9)
Adj. PAT 1,387 812 70.9 2,377 (41.7)

Source: Company, PL

Avg Copper spot price up by 76%/ 15% YoY/QoQ Avg Aluminum spot price up 56%/ 16% YoY/QoQ
186599
900000 Copper (INR/ MT) 200000 Aluminium (INR/ MT)
800000 695349
700000 150000
600000 110432
500000
100000
400000
445258
300000
200000 50000
100000
0 0
Jun-17

Jun-18

Jun-19

Jun-20

Jun-21
Mar-18

Mar-19

Mar-20

Mar-21

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21
Dec-17

Dec-18

Dec-19

Dec-20
Sep-17

Sep-18

Sep-19

Sep-20

Mar-18

Mar-19

Mar-20

Mar-21
Dec-17

Dec-18

Dec-19

Dec-20
Sep-17

Sep-18

Sep-19

Sep-20
Source: PL Source: PL

Polypropylene prices up by 56%/ -1.1% YoY/ QoQ Avg INR down by 3% YoY; up by 1.2% QoQ

2500 Polypropylene (USD/ MT) 78.0 USD/ INR 75.0 74.4

76.0
2000 74.0
1540
72.0
1500 1220
70.0
790 68.0
1000
66.0
500 64.0
62.0
0 60.0
Jun-18

Jun-19

Jun-21
Jun-17

Jun-20
Mar-18

Mar-19

Mar-20

Mar-21

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21
Dec-17

Dec-18

Dec-19

Dec-20
Sep-17

Sep-18

Sep-19

Sep-20

Mar-18

Mar-19

Mar-20

Mar-21
Dec-17

Dec-18

Dec-19

Dec-20
Sep-17

Sep-18

Sep-19

Sep-20

Source: PL Source: PL

July 6, 2021 3
 Consumer Durables

Q4FY21 Result Snapshot

Sales EBITDA PBT Adj. PAT
(Rs mn)
Q4FY21 YoY gr. QoQ gr. Q4FY21 YoY gr. QoQ gr. Q4FY21 YoY gr. QoQ gr. Q4FY21 YoY gr. QoQ gr.
BJE IN 12,545 -3.5% -16.2% 716 114.2% -51.4% 765 NA -35.7% 590 NA -29.3%
CROMPTON IN 15,153 48.8% 14.5% 2,248 62.4% 15.2% 2,276 70.0% 15.2% 1,698 70.2% 15.2%
HAVL IN 33,312 50.3% 5.2% 5,057 106.1% -0.5% 4,544 129.8% -2.9% 3,352 89.2% -4.0%
POLYCAB IN 30,374 42.6% 8.5% 4,213 40.1% 12.1% 3,831 32.6% 8.3% 2,814 31.6% 7.2%
VOLT IN 26,517 26.9% 32.9% 3,307 72.2% 126.7% 3,430 44.0% 84.5% 2,377 48.0% 85.9%
Source: Company, PL

Management Commentary
Company Commentary

Fans/ Appliances/ Lighting grew by 36%/ 37%/ -4%/ in 4Q. Full impact of commodity inflation seen in 4Q, pressure likely to persist
for 3-5months before it stabilizes. Taken 2 rounds of price hikes so far – Jan:6-8%; May:3-5%. Hopeful of markets opening up June
BJE IN
onwards. However, intensity of pent up demand is unlikely to be as strong as last year. Within consumer products, fans to offer
maximum growth potential. BJE will continue to aggressively defend its position within Kitchen Appliances.

Fans/ Pumps/ Water Heaters / Air Coolers/ Mixer Grinders/ B2C lighting grew by 59%/ 61%/ 87%/ 72%/ 84%/ 41% in 4Q. With
pricing stabilizing, double digit margins in Lighting seem sustainable. Fans/ Residential Pumps market share at 27-28%. B2C LED/
CROMPTON IN Water Heater market share at 8-10%/ 15%. Air Cooler and Mixer grinder market share in low single digits. Back end of April and full
of May has been a washout. Normalcy to return from 2Q. Inventory levels are higher YoY, However, compared to normal year, they
remain at comfortable levels. Savings of Rs60cr through cost saving program (Project Unnati). Goal is to save 1.5% annually

Industrial and Infra portfolio started exhibiting growth since Jan. Price hikes taken in 3Q/4Q to fully reflect in coming quarters. Margins
to stabilize by 2Q/3Q. Price elasticity not very high. April started off well across product categories before 2nd Covid wave halted
HAVL IN
momentum. Lloyd likely to have gained significant RAC market share in FY21. Only player to have grown in FY21. Washing Machine
and Refrigerators likely to be growth avenues. RAC will continue to benefit from Make in India and export opportunities 2-years
Capex target of Rs10bn. Will add capacity in most product categories

In 4Q, infrastructure & construction industry had picked up in full swing aided by both Govt & private capex. B2C contribution has
POLYCAB IN increased to 40.2% in FY21 (32.6% FY20). Polycab has embarked on journey (Project Leap) to more than double revenues to
Rs200bn by FY26 wherein B2C (Retail wires & FMEG) & exports will be growth drivers. With increasing share of B2C mix, cost
optimization program, premiumisation will enable EBITDA margins to trend upwards. FY22 capex to be around R3bn

RAC sales aided by channel stocking amidst fears of supply chain disruptions and price escalations. UCP margins aided by i) product
mix ii) cost efficiencies iii) lower inventory holding iv) calibrated price hikes. Channel Inventory in March was low at 30-35 days which
VOLT IN
has now increased to 45-50 days+. Total MEP carry forward order book at Rs66bn (Rs42bn domestic). Voltbek: Dishwashers/ Refs/
WM market share at 30%/ 3%/ 2.5%. Selling through 6000 touchpoints. 6) Commercial Refs/ Air Coolers grew by 17%/ 37%

July 6, 2021 4
 Consumer Durables

Valuation Summary

CMP TP MCap Sales (Rs bn) EBITDA (Rs bn) PAT (Rs bn) EPS (Rs) RoE (%) PE (x)
Company Names S/C Rating
(Rs) (Rs) (Rs bn) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Bajaj Electricals S HOLD 1,050 1,084 120.3 49.8 45.7 50.2 59.3 2.1 3.0 3.9 5.4 -0.0 1.5 2.4 3.5 -0.0 13.5 21.1 30.6 -0.0 10.4 14.0 17.6 NA 77.9 49.8 34.3
Crompton Greaves
S BUY 450 454 282.6 45.1 47.5 53.8 61.3 6.0 7.0 7.6 9.2 4.4 5.3 5.9 7.1 7.0 8.4 9.4 11.3 34.1 31.2 28.8 30.6 64.6 53.5 48.0 39.7
Consumer Electricals
Havells India S Hold 1,022 1,066 640.0 94.3 104.3 115.7 136.7 10.3 15.7 16.4 19.8 7.3 10.3 11.0 13.7 11.7 16.5 17.6 21.8 17.3 21.8 19.7 21.0 87.3 62.1 57.9 46.8
KEI Industries C BUY 721 825 64.8 48.9 41.8 52.8 60.4 5.0 4.6 5.9 6.7 2.6 2.7 3.7 4.3 28.6 30.4 41.2 47.7 22.4 16.6 18.8 18.2 25.2 23.7 17.5 15.1
Polycab India C BUY 1,980 1,927 295.3 88.3 89.3 116.1 134.1 11.4 11.7 14.9 17.8 7.6 7.7 10.0 12.2 51.0 51.8 66.8 81.6 22.7 18.0 19.2 19.9 38.8 38.2 29.6 24.3
Voltas C Hold 1,015 955 335.6 76.6 75.6 87.3 99.5 6.9 6.4 8.4 10.4 5.7 5.3 6.9 8.8 17.2 15.9 21.0 26.7 13.5 11.3 13.2 15.1 59.0 63.9 48.4 37.9
Source: Company, PL S=Standalone / C=Consolidated
Some stocks have variation from our rating system with regards to target prices and upsides given increased market volatility. We shall review the same at the time of results.

Change in Estimates
Sales PAT EPS
Rating Target Price
FY22 FY23 FY22 FY23 FY22 FY23
% % % % % % %
C P C P C P C P C P C P C P C P
Chng. Chng. Chng. Chng. Chng. Chng. Chng.
Bajaj Electricals HOLD HOLD 1,084 1,084 0.0% 50,214 50,214 0.0% 59,275 59,275 0.0% 2,415 2,415 0.0% 3,508 3,508 0.0% 21.1 21.1 0.0% 30.6 30.6 0.0%
Crompton Greaves
BUY BUY 454 454 0.0% 53,795 53,795 0.0% 61,268 61,268 0.0% 5,887 5,887 0.0% 7,119 7,119 0.0% 9.4 9.4 0.0% 11.3 11.3 0.0%
Consumer Electricals
Havells India Hold Hold 1,066 1,066 0.0% 1,15,725 1,15,725 0.0% 1,36,724 1,36,724 0.0% 11,047 11,047 0.0% 13,675 13,675 0.0% 17.6 17.6 0.0% 21.8 21.8 0.0%
KEI Industries BUY BUY 825 825 0.0% 52,766 52,766 0.0% 60,423 60,423 0.0% 3,700 3,700 0.0% 4,288 4,288 0.0% 41.2 41.2 0.0% 47.7 47.7 0.0%
Polycab India BUY BUY 1,927 1,927 0.0% 1,16,148 1,16,148 0.0% 1,34,117 1,34,117 0.0% 9,962 9,962 0.0% 12,165 12,165 0.0% 66.8 66.8 0.0% 81.6 81.6 0.0%
Voltas Hold Hold 955 955 0.0% 87,265 87,265 0.0% 99,520 99,520 0.0% 6,935 6,935 0.0% 8,847 8,847 0.0% 21.0 21.0 0.0% 26.7 26.7 0.0%

Source: Company, PL C=Current / P=Previous

July 6, 2021 5
 Consumer Durables
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Asian Paints BUY 3,136 3,005
2 Avenue Supermarts BUY 3,366 3,314
3 Bajaj Electricals Hold 1,084 1,131
4 Britannia Industries Accumulate 3,755 3,545
5 Burger King India BUY 250 158
6 Colgate Palmolive Accumulate 1,794 1,690
7 Crompton Greaves Consumer Electricals BUY 454 398
8 Dabur India UR - 590
9 Emami BUY 579 564
10 GlaxoSmithKline Consumer Healthcare Hold 9,377 9,247
11 Havells India Hold 1,066 1,028
12 Hindustan Unilever BUY 2,562 2,487
13 ITC BUY 258 202
14 Jubilant FoodWorks Accumulate 3,371 3,146
15 Kansai Nerolac Paints Accumulate 620 587
16 Marico UR - 520
17 Nestle India Accumulate 18,450 17,602
18 Pidilite Industries UR - 2,179
19 Polycab India BUY 1,480 1,376
20 Titan Company Accumulate 1,663 1,755
21 Voltas Hold 955 999
22 Westlife Development BUY 572 496

PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

July 6, 2021 6
 Consumer Durables

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July 6, 2021 AMNISH AGGARWAL

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Date: 2021.07.06 14:11:46 +05'30'