Consumer Electricals - Steady Robust Performance In Cables, Wires Drives Rerating: Systematix

Systematix Research Report

Aggregate Q4 FY23 revenue/Ebitda/profit after tax of eight companies within our coverage universe (up 8%/8%/-1% YoY and 12%/18%/19% QoQ) was in line with our estimate. However, individual performance was a mixed bag.

As expected, cables and wires companies sustained their robust performance (consolidated revenue up 9% YoY and 15% QoQ, led by Polycab India Ltd., up 15% YoY and 22% QoQ) on strong volumes, as copper prices fell 2% YoY (up 12% QoQ) on a three-month rolling basis; strong volumes translated into healthy margins for the C&W division. We had raised our FY24E/25E earnings for Polycab by ~5% post Q4 results, but retained the same for KEI Industries Ltd. and Finolex Cables Ltd.

Flattish revenue (YoY and QoQ) in electrical consumer durable was ~8% below our estimate, led by companies (V-Guard Industries Ltd., Orient Electric Ltd., Polycab) having higher exposure to fans and kitchen appliances in their portfolio.

While above-normal inventory in fans (pushed during Q3) hurt primary demand on the one hand, high inflation continued to weaken consumer sentiment on the other.

Lower sales also impacted the segment margins of most companies. Weak ECD results led us to cut FY24E/25E earnings by ~8% in Crompton Greaves Consumer Electricals Ltd. and ~5% in Orient Electric. However, Bajaj Electricals Ltd. saw ~7% earnings upgrade for FY25E, on expected superior margins and cash levels.

Sunflame’s consolidation led to 10% revenue/profit after tax upgrade for V-Guard (we were already valuing it on proforma earnings per share).

While our outlook stays sanguine for the C&W industry, based on continuing healthy traction in housing and infrastructure activities, we lower our return expectations, post sharp run-up and rerating in the scrips. In ECD, demand revival by festive season (Q5), as guided by management, is a key monitorable.

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