Consumer Durable- Consensus Expectation Of Earnings Upgrade Due To Heat Wave Appear Overdone: ICICI Securities

ICICI Securities Report

We differ from consensus that ongoing heat wave is likely to result in strong valuation upgrade for fan, cooler or air conditioner companies. Chief reasons:

1. fan companies had sold inventory of non-star rated fans in Q3 FY23 and there is approx. three weeks extra inventory in trade which will get liquidated in Q4 FY23. It is likely to result in lower primary sales for fan companies in Q4 FY23,

2. there is steep competition among air conditioner companies.

Most companies are operating at return on capital employed less than cost of capital. Market leader Voltas Ltd. has not raised prices in H2 FY23 inspite of higher cost pressures.

We believe growth with low profitability might not lead to any valuation upgrade.

Our channel check feedback also suggests that there is no material change in consumer off-take. Higher discounts (and not necessarily heat wave) are leading to slightly higher volume growth.

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