Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities and Saras Singh, Institutional Research Analyst, HDFC Securities
Aggregate revenue/EBITDA to grow by 20/18%: Our appliances coverage universe is expected to deliver growth of 20/18% YoY in revenue/EBITDA in Q2FY22 (vs. 7/33% YoY in Q2FY21 and 42/85% in Q1FY22). The revenue for Q2FY22 is on a normalised base across most of the companies; however, the EBITDA margin base was higher due to cost saving initiatives. Pricing action took place across categories to pass on the steep inflation. Demand recovery in July and August was strong; however, September saw slight deceleration. The medium-term demand remains robust on positive macro drivers. B-C demand sustained strong traction, while the B-B business is seeing revival, owing to increase on-ground execution and new projects.
Two-year CAGR: Our coverage universe is expected to deliver 13/25% two-year revenue and EBITDA CAGRs in Q2FY22. Companies that are expected to outperform on two-year revenue CAGR will be Crompton, Havells and Voltas, with 16/15/14% YoY CAGRs. On two-year EBITDA CAGR, Orient Electric, Havells and Crompton are expected to outperform, clocking 48/41/29% YoY CAGRs.
Margins pressure continues in Q2FY22: Gross margin will be impacted by the higher input costs in Q2FY22 despite price hikes by companies across product categories. Commodity inflation has sustained for the past 3-4 quarters, impacting gross margins, as companies have taken calibrated price hikes. Positive trends in the lighting pricing will benefit companies with exposure to this segment. While we do see further price hikes being a challenge in many of the categories, cost rationalisation initiatives will help companies improve margin in the near term. EBITDA/EBIT margin will be the key monitorable in Q2 results.
Q2FY22 Outliers: Havells, Crompton and Orient Electric.
Our view: With increased mobility and optimistic outlook on the consumer confidence index, we expect companies to continue with their growth momentum. We believe improving housing activities and resumption of Capex would sustain strong revenue traction in the coming quarters. Leading companies have already taken price hikes to pass on most of the costs; however, continued raw material inflation remains a concern.
We have BUY ratings on Crompton Consumer and Orient Electric and ADD ratings on Havells, Voltas, TTK Prestige, V-Guard, and Symphony.