Revenue in the consumer durables industry would increase by 15—18% this fiscal: CRISIL Report

8 Sep 2022 , 08:33 AM

According to a report by CRISIL, the consumer durables sector would likely experience double-digit volume growth despite growing margin pressure, raising its sales by 15—18% to Rs 1 lakh crore this year.

The analysis predicts a 10—13% increase in demand and volume, driven by both urban and rural markets, primarily in the categories of refrigerators and air conditioners, while rural demand will become more significant in the second half of the fiscal year.

According to a CRISIL analysis report released on Wednesday, the industry will rise over the pre-pandemic volume mark by 3% this fiscal after surpassing it in value terms the previous fiscal.

The runaway commodity costs of inputs like copper, aluminium, steel, and polypropylene are putting pressure on margins, but not to the same amount as the previous fiscal year when it declined by 180-200 bps. However, the research did not specify how much the margins would be hurt.

The rupee’s decline is another factor contributing to margin compression; nevertheless, because 45—50% of raw materials are imported, this factor will also have a negative impact on profitability.

According to the report, however, industry profitability will slightly drop because of increasing raw material prices and unfavourable foreign exchange movements based on an analysis of eight companies that account for half of the sectoral income. However, because of their robust balance sheets, which are demonstrated by low leverage and a good liquidity level, the leading companies’ credit profiles continue to be favourable.

Shorter replacement cycles, up-trading, greater financial penetration, and shifting weather patterns are other enablers that will increase volume by 10—13%. However, a lot depends on the extent of the eastern market drought and how the monsoons develop in the season’s final weeks.

The market for underserved air conditioners (AC) will be the main growth engine. The demand for freezers and air conditioners is being fuelled by shifting weather patterns. More consumers are choosing fully automatic washing machines and refrigerators with increased capacity.

According to the survey, compact AC units are favoured because of the smaller residences found in urban regions. Shorter replacement cycles, various ownerships, and a preference for bigger screens are driving the demand for television.

Due to the high prices of important commodities including copper, aluminium, steel, and polypropylene, which could not be fully passed on to the end consumer, the operating margin is projected to fall moderately this fiscal year after significantly contracting by 180—200 bps last year.

Input prices are still higher than historical levels even if they have dropped from the peak in the last two months. Profitability is further affected by the depreciation of the rupee because 45—50% of the raw materials are imported.

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