Consumer Durables

Jul-Sep'20 Earnings Preview

October 6, 2020 B2C and small ticket items lead recovery
We retain positive stance on consumer durables given huge penetration
scope, higher in-home usage, more so in small ticket items. We expect
PL Universe Sales/EBITDA/PBT/Adj. PAT decline of 4.8%/ 0.9%/ 4.3%/ 12.8% across our
coverage universe. YoY decline in PAT, although is not comparable due to
Companies Rating CMP (Rs) TP (Rs)
implementation of corporate tax rate cut. The momentum witnessed in June
Bajaj Electricals BUY 498 564 (where most companies observed return to previous year levels) continued
Crompton Greaves in 2Q benefitting from easing lockdown restrictions. Daily use appliances led
BUY 280 308
Consumer Electricals
Havells India Reduce 688 571 the return to recovery, while pace of recovery in B2B portfolio remained
Voltas Accumulate 672 702 sluggish. Commodity prices (which were soft last quarter) saw a sharp
increase with LME spot Copper/ Aluminum prices up by 18.7%/ 2.2% YoY.
Source: PL
Crompton Consumer remains the preferred pick in our coverage universe.

B2C portfolio leading recovery

Top Picks
 Appliances leading recovery in B2C portfolio: Regardless of localized
lockdowns, demand recovery seen in June B2C sales sustained in 2Q as well.
Crompton Greaves Consumer Electricals
Along with everyday use small ticket items like kitchen appliances, fans,
lightings etc, sale of washing machines, refrigerators and dishwashers are
leading the recovery. RAC sales moderated towards the end due to
seasonality. Initial signs of festival season demand remain positive.

 B2B continues to remain a drag: The recovery in B2B portfolio remains

sluggish due to 1) lower spends on infrastructure/ real estate due to slowdown
in economy 2) increased instances of Work from Home and 3) rising instances
of vacancy in office space/organized retail due to slowdown.

 Lighting segment to benefit from price stability: Although LED lighting

industry exhibited double-digit volume growth over last few years, value growth
remained impacted due to price erosion. However, with the segment
(especially B2C) witnessing price stability since 2HFY20 (3-4% price hikes),
we expect gradual expansion in margins.

 Channel inventory lower than normal levels: Trade continues to operate on

leaner inventory levels (except for RAC – higher by 10-15 days). Primary and
Secondary sales are now trending more in sync with encouraging collections.
Late Diwali (November) will delay inventory filling to 2H October.

 EPC - execution remains weak; delay in collections: Even as most project

sites opened up and workforce issue largely resolved, the pace of execution
remains slow due to restricted movements and social distancing norms based
on local advisories. With the government’s focus on fighting the pandemic and
slowdown in economic activity new project announcements have been delayed
thereby impacting order flows. Pace of collections remains unsatisfactory.
Amnish Aggarwal
amnishaggarwal@plindia.com | 91-22-66322233  Crompton will be the only player showing growth in sales and PBT benefitting
Paarth Gala from lower B2B exposure while all other companies are expected to report
paarthgala@plindia.com | 91-22-66322242 decline in both sales and PBT. BJE, benefitting from its changing mix and
reducing interest burden, is likely to post a profit of Rs81mn against a loss of
Rs330mn.

October 6, 2020 1
 Consumer Durables

 Crompton Consumer: Crompton remains our preferred play given 1) low

discretionary nature of products (fans, lighting, mixer-grinder, pumps) 2)
sustained growth potential in core categories (fans & pumps) 3) well defined
plan to scale up new segments like Geysers, Air Coolers & Mixer-Grinder 4)
investments in distribution, GTM initiatives & product innovation and 5) strong
balance sheet (FY23 net cash of Rs21.1/ share, RoE/ RoCE of 25.9%/ 32.8%.
We retain BUY with TP of Rs308 (30x FY23 EPS)

Q2FY21 Result Preview

YoY gr. QoQ gr.
Company Name Q2FY21E Q2FY20 Q1FY21 Remark
(%) (%)
Sales 10,330 10,918 (5.4) 6,077 70.0
We expect sales to decline by 5.4% with Consumer
EBITDA 434 238 82.3 -208 NM
Products segment growing by 6.5% while EPC segment
Bajaj Electricals Margin (%) 4.2 2.2 -3.4 declining by 26.5%. Changing mix, reducing interest burden
and cost saving measures will help register a profit of
PBT 108 -259 NM -571 NM
Rs81mn
Adj. PAT 81 -330 NM -419 NM
Sales 10,886 10,758 1.2 7,132 52.6
We expect sales to marginally improve by 1.2% with ECD
Crompton EBITDA 1,393 1,295 7.6 988 41.0
segment growing by 6% while Lighting segment declining
Greaves
Margin (%) 12.8 12.0 13.9 by 12%. Benefitting from its cost initiative programs and
Consumer
improving scale of operations, we expect margins to expand
Electricals PBT 1,387 1,267 9.5 988 40.4
by 80bps.
Adj. PAT 1,034 1,113 (7.1) 737 40.2
Sales 20,869 22,303 (6.4) 14,791 41.1
We expect core segment sales to decline by 7.7% YoY as
EBITDA 2,129 2,341 (9.1) 1,309 62.7
growth in B2C portfolio is more than offset by sluggish pace
Havells India Margin (%) 10.2 10.5 8.8 of recovery in B2B portfolio (cables, switchgears, B2B
lighting). Lloyd shall post a growth of 7.5% on a low base.
PBT 1,668 2,051 (18.7) 860 94.1
We expect margins to marginally decline.
Adj. PAT 1,239 1,814 (31.7) 633 95.7
Sales 13,330 14,219 (6.3) 12,969 2.8
EBITDA 933 1,059 (11.9) 668 39.8
We expect sales to decline by 6.3%. UCP sales to grow by
Voltas Margin (%) 7.0 7.4 5.1 5% while slow pace of execution to result in 15.8% decline
in EMPS segment. We expect margins to marginally decline
PBT 1,346 1,655 (18.7) 1,192 12.9
Adj. PAT 893 1,126 (20.7) 812 10.0

Source: Company, PL

Copper spot price up by 18.7%/19.2% YoY/QoQ Aluminum sport price up by 2.2%/11.4% YoY/QoQ

Copper Spot (INR/MT) Aluminium Spot (INR/MT)

5,50,000 1,80,000
5,00,000 1,60,000
4,50,000 1,40,000
4,00,000
1,20,000
3,50,000
1,00,000
3,00,000
2,50,000 80,000
2,00,000 60,000
May-18

May-19

May-20
Jan-18
Mar-18

Jan-19
Mar-19

Jan-20
Mar-20
Jul-18

Jul-19

Jul-20
Nov-17

Nov-18

Nov-19
Sep-17

Sep-18

Sep-19

Sep-20
Jan-18

May-18

Jan-19

May-19

Jan-20

May-20
Mar-18

Mar-19

Mar-20
Jul-18

Jul-19

Jul-20
Sep-17

Sep-18

Sep-19

Sep-20
Nov-17

Nov-18

Nov-19

Source: PL Source: PL

October 6, 2020 2
 Consumer Durables

Valuation Summary

CMP Sales (Rs bn) EBITDA (Rs bn) PAT (Rs bn) EPS (Rs) RoE (%) PE (x)
Company Names Rating TP (Rs)*
(Rs) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Bajaj Electricals BUY 498 564 49.8 47.1 54.0 60.9 2.1 2.1 3.6 4.4 -0.0 0.7 2.1 2.9 -0.0 5.7 18.7 25.2 -0.0 4.6 13.7 16.3 NA 86.7 26.6 19.7
Crompton Greaves
BUY 280 308 45.1 43.6 51.5 57.6 6.0 5.7 7.5 8.5 4.4 4.1 5.6 6.4 7.0 6.6 9.0 10.3 34.1 24.7 27.0 25.9 40.2 42.5 31.3 27.3
Consumer Electricals
Havells India Reduce 688 571 94.3 92.8 110.0 124.8 10.3 10.4 13.5 15.6 7.3 6.4 9.1 10.8 11.7 10.2 14.5 17.3 17.3 13.8 17.4 18.4 58.7 67.5 47.3 39.7
Voltas Acc 672 702 76.6 73.9 88.0 97.8 6.9 6.9 9.3 10.5 5.7 5.6 7.7 9.0 17.2 16.8 23.1 27.3 13.5 12.4 15.4 16.0 39.1 40.0 29.1 24.6
Source: Company, PL * We roll over target multiple to FY23 EPS (earlier Sept22 EPS)

October 6, 2020 3
 Consumer Durables
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Asian Paints Accumulate 1,829 1,717
2 Avenue Supermarts Hold 2,055 2,163
3 Bajaj Electricals BUY 500 436
4 Britannia Industries BUY 4,279 3,830
5 Britannia Industries BUY 4,279 3,830
6 Colgate Palmolive Reduce 1,344 1,448
7 Crompton Greaves Consumer Electricals BUY 308 260
8 Dabur India Hold 469 494
9 Emami BUY 419 257
10 GlaxoSmithKline Consumer Healthcare Hold 9,377 9,247
11 Havells India Reduce 524 595
12 Hindustan Unilever Hold 2,304 2,249
13 ITC BUY 262 200
14 Jubilant FoodWorks Hold 2,255 2,251
15 Kansai Nerolac Paints BUY 550 481
16 Marico Hold 355 350
17 Nestle India Reduce 14,089 17,095
18 Pidilite Industries Hold 1,415 1,378
19 Titan Company Hold 1,057 1,108
20 Voltas Accumulate 660 629

PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

October 6, 2020 4
 Consumer Durables

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Date: 2020.10.06 18:58:35 +05'30'