Improving demand improves the outlook of the consumer electrical sector

Consumer Electrical companies kick-off CY21 on a cheerful note. While consumer demand is back to pre-Covid levels, initial green shoots of pick-up in the housing sector bode well for rekindling an important long-term demand driver. The proposed Production-Linked Incentive (PLI) scheme across LED lighting, ACs, STB and Laptop & Tablets offers attractive opportunities for domestic EMS players and brands.

Revenue momentum sustains:
 
The sharp pick-up in sales offtake witnessed in Sep-2020 has sustained across most categories, buoyed by healthy festive spending for consumer durables, early onset of winter aiding demand for seasonal products, large national brands sustaining market share gains from small & unorganised players and increased reach in tier 2/3/4 towns. Restriction on imports for LED TVs, ACs & other products has significantly aided volume growth for Dixon/Amber and other domestic brands. B2B demand was soft and is likely to normalise by Mar-2021, supported by government spending.

Channel up-stocks ahead of pricing actions:
 
While the impact of the price increase − announced (5-15% across various categories) to partially offset inflationary headwinds − would be seen from Jan-2021, channel partners − who were otherwise working with thin inventories throughout the pandemic − started up-stocking in Dec-2020, thereby aiding better primary sales for companies. Fans and ACs witnessed healthy quarter-end stocking, ahead of the season and price hike.

Details on new PLI schemes to provide visibility:
 
The PLI scheme for ACs (Rs50bn) and LED lighting (Rs12bn) is expected to be announced any time in Jan-2021, thereby likely to enhance cost competitiveness of brands and ODM players like Crompton, Havells, Voltas, Amber and Dixon. In addition, Dixon is looking to enter new verticals like laptops & tablets under the proposed PLI scheme (~Rs10- 20bn), which opens a large untapped domestic market.

Stock Performance:

Nifty 50 has rallied 71.7% (March 25, 2020- January 18,2021) since the first nationwide lockdown was announced by Prime Minister Narendra Modi Here, we have discussed some consumer electrical sector stocks that have given positive returns or have outer performed the benchmark index Nifty 50 in the same period.

Source: Ace Equity

In the above table, we have discussed the performance of some of the stocks in the consumer electrical industry that have given spectacular returns in the past 10 months. Dixon Technologies (India) Ltd. has given the maximum return whereas, Symphony Ltd. has given the lowest return of 41.4% from March 25,2020 to January 18, 2021.