White Goods - Q1FY21 does not provide any discernible business trend - ICICI Securities
Q1FY21 should not have any bearing on the business expectations in a steady state situation considering the unique impact of nationwide lockdown which will continue albeit in an intermittent manner in Q2FY21 as well. We highlight key trends which have come up from the results of Crompton Consumer (Crompton), Havells and V-Guard (VGRD).
- Q1FY21 is a one-off quarter with little bearing on normalised business growth. All three consumer electrical companies (Havells, VGRD and Crompton) have reported ~45% revenue drop in Q1FY21. April has witnessed complete shutdown with gradual restoration to ~70% levels in May and 90-105% growth YoY in June. However, the proportion of business decline is more due to higher sales share of April. Additionally, due to pent up demand, the revenue trajectory has been decided more by the level of business normalcy rather than execution. Common trends include more demand of B2C compared to B2B products, better sales in non-metro regions and relative inelasticity of price as sales have been driven by more of a push rather than sales. Havells has reported market share gain from unorganised players who were impacted from supply-chain disruption.
- Can we rank performance by gross margin show? With little control over revenue (more a factor business normalcy), it can be argued that gross margin is a better measure of successful adaptation of companies to the unique situation posed by Covid-19 outbreak. Crompton (flat gross margins YoY) has fared better than Havells/VGRD (280/340 bps drop in YoY gross margins). This could have been aided by higher share of outsourcing in the manufacturing mix of Crompton.
- Recovery to normalcy will be non-linear; July will mostly lag June. The business normalcy and the subsequent recovery will depend on the extent of the impact from Covid-19 outbreak. Most companies have prepared themselves against covid-19 related uncertainties by building up strong balance sheet (Q1FY21 net cash position for Havells/Crompton/V-Guard stands at Rs8.4/4.5bn/Rs3.5bn)
- Maintain ADD on Havells and Crompton, HOLD on VGRD. We expect 4.5%/23.4% revenue/PAT decline for Havells with EBITDA margin of 10.5% in FY21. And 24%/69% revenue/PAT growth with EBITDA margin of 13.2% in 22E, respectively. Havells continues to possess an additional lever for outperformance depending upon the performance of Lloyds which will have tailwinds of in-house manufacturing in FY21/22. We expect 12/23% revenue/PAT decline for Crompton with EBITDA margin of 12.5% in FY21/ and 27.2/35.4% revenue/PAT growth with EBITDA margin of 13.3% in 22E, respectively. The higher share of B2C mix and relative stability in LED price trends set up Crompton for a fast turnaround as and when there is recovery from Covid-19 pandemic. The growth in appliances (.Appliances grew by 60% in Jan/Feb led by geysers (97%), mixer grinders (54%) and coolers (86%)) is slowly showing promise. VGRD has relatively outperformed peers (15% EBITDA change in FY20 compared to -12.8%/+2.5% for Havells/Crompton). Higher dependence on summers (stabilisers, fans) and lower margins especially in non-south markets are headwinds.
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