Driven by electrical appliances, India’s sustainable consumer sector is expected to record revenue growth of around 20% in this fiscal year.
Manufacturers of electrical appliances (~ 35% of industry revenue) are expected to grow twice as fast as manufacturers of white goods (~ 65% of industry revenue). This revenue jump is followed by the flat trend from the previous year, according to CRISIL Research.
Manufacturers of consumer durables have recovered faster than other consumer discretionary sectors such as clothing and jewelry retail, driven by higher demand for home improvement products during the extended stay period home.
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‘Growth momentum is expected to accelerate this fiscal year on positive consumer sentiment, increase and higher achievements. such as shorter replacement cycle, necessity and smaller ticket size, ”explains Gautam Shahi, director of CRISIL Ratings.
However, operating profitability will be somewhat lower due to the more expensive inputs and despite the price increases. Despite higher revenues, the sector’s margins are expected to moderate 100 to 150 basis points (bps) in this fiscal year.
According to CRISIL Rating, although the prices of key commodities such as copper, aluminum and polypropylene (around 70% of the raw material needs of the consumer durables sector) have stabilized, they are 30% higher. the average of the last two financial years (see graph in appendix). And the impact on profitability will vary due to lower price increases.
Overall, the industry recorded around Rs 2 lakh crore in revenue over the past fiscal year, which includes consumer electrical appliances (excluding cell phones) and white goods. Consumer electricity makers increased their prices 8-10% this fiscal year, well above the 3-4% average for white goods makers.
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White goods include washing machines, televisions, refrigerators, and air conditioners, and consumer electrical appliances include fans, small kitchen and baking appliances, and lighting products, among others.
In addition, CRISIL Rating indicates that the operating profitability of home appliance manufacturers is expected to moderate to 6-7%, marking an impact of up to 200 basis points (bps), compared to 10-11% for manufacturers of household appliances. consumer electricity, which would have an impact of 50-100 bps.
“Despite declining profitability, the traditional strengths of low leverage (around 0.2 times gearing), asset-lean business models, and healthy cash accumulation will ensure that credit profiles remain stable over time. during this fiscal year, ”explains Sushant Sarode, Associate Director, CRISIL Evaluations.
“In the medium term, capital spending could increase given the government’s production-linked incentive (PLI) program for white product components (Rs 6,238 crore spread over fiscal years 2022-2029), aimed at increasing indigenization of imported components. We believe that capital spending is likely to be phased in, which would ensure stable credit profiles, ”he adds.