India’s electrical and consumer durable sector is largely dominated by foreign players such as LG and Samsung; however rapid changes to dynamics of the sector could now see domestic listed companies benefit, according to global brokerage and research firm Credit Suisse. Analysts see the Indian consumer durables sector as a Rs 6 lakh crore market opportunity with a 15% CAGR till the financial year 2024-25. “Rapid changes in the sector provide an opportunity for some large Indian companies to strengthen presence in the large market,” Credit Suisse said. The changes include Government push to encourage domestic manufacturing, changing customer preferences, and channel proliferation.
“Several areas of this overall opportunity, particularly in consumer durables such as refrigerators etc. have not been traditionally contested by Indian companies and dominated by companies such as LG and Samsung. Rapid changes in the sector provide an opportunity for some large Indian companies to strengthen their presence in the large consumer durables market and thus multiply their total addressable market,” Credit Suisse said in a note. Talking stock, Credit Suisse believes Havells and Voltas are best placed, considering their already dominant market position. The brokerage firm is also bullish on Amber but rates it lower in the pecking order.
Target price: Rs 1,475
Havells stock price has seen a sharp jump this quarter, gaining 45% since the end of June. “Havells trades expensive at 53x/42x FY23/24E earnings and thus we expect returns would be driven by earnings traction,” Credit Suisse wrote. Havells is expected to deliver a 20% CAGR earnings growth driven by a growth revival in switchgear and cables, market share gains in consumer durables, a strengthening presence in electrical consumer goods and appliances, and margin gains in Lloyd’s portion of the business.
Currently, Havells stock price is trading at Rs 1,445 per share, just 2% shy of the target price. However, the bull case target price set by Credit Suisse for Havells could see the stock surge to as high as 1,750 per share, implying a 21% upside. “Our blue sky scenario value of Rs1,750 assumes faster-than-expected growth with steady margin gains due to strong macro recovery,” analysts said.
Target price: Rs 1,150
Voltas has been upgraded by Credit Suisse to outperform rating, expecting the stock to surge higher after recent underperformance and the likelihood of strong catch up in AC sales post two years of COVID-19 impact. “Voltas is gaining traction in the consumer durables category and reported 3.1% and 2.7% market share in the refrigerator and washing machine category, respectively. As distribution scales up, Voltas can gain further market share in these large opportunities. We value Voltas’ share of this business at Rs65 bn now,” analysts at Credit Suisse said.
The blue sky (bull case) target price for Voltas has been pegged at Rs 1,325 by Credit Suisse. Implying an upside of 15%.
Target price: Rs 3,450
Amber is contract manufacturing ~25% of the ACs sold in India, and almost all major brands are customers. The company makes 60% of its revenue from ACs. “Amber is one of the key beneficiaries of the AC PLI. PLI scheme is favourable for manufacturers, such as Amber, vs brand players, such as Voltas,” Credit Suisse said. In a bull case scenario, the stock is expected to rise as high as Rs 4,000 per share. Currently, Amber Enterprises trades at Rs 3,116 per share.