The onset of festive season this year may bring back some demand for consumer durable products, which has slowed down since end of May, leading to operating margin pressure for companies in the quarter ended June 2022. The sluggishness continued into July as well raising some concerns among the future demand scenario.
While growth projections were at 20-25% over financial year 2019-2020 volumes in the June quarter, the industry has actually witnessed a de-growth of about 10% as the sales slowed down after May 2022.
B Thiagarajan, managing director, Blue Star said that over the past few years the peak demand season is shifting, resulting in March and April becoming the peak buying season for customers. “Of late demand is peaking in March and April and that will be the trend as people tend to buy when the temperatures are shooting up. This year, there was also fear that the prices will go up and therefore dealers and consumers may have purchased ahead of the usual time,” he told analysts in a recent call.
Anuj Poddar, managing director and CEO, Bajaj Electricals said that the demand slowed down from the third week of May, with June seeing weaker demand and that continued into July as well.
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Operating income for consumer durable companies remained a challenge during the quarter ended June 2022. “Profitability remained challenging – Ebitda (earnings before interest, tax, depreciation and amortisation) margins dipped 180 basis points below our estimate, albeit flat y-o-y, owing to high-cost inventory, limited pricing action and higher ad-spends during the quarter,” said analysts at Edelweiss.
Some manufacturers also said that while premium categories did well, stress was more felt on entry segments, given the high inflationary impact. Vishal Bhola, managing director Whirlpool of India said, “The industry showed good recovery in mid and premium while the entry segment was muted with inflation putting stress on consumer spending.”
Voltas, reported a sharp 35% miss on Ebitda due to an EPC provision-induced loss. While the company reported 7% growth in cooling revenue, the first quarter margins were at a 14-year low, said Edelweiss.
Air-cooler manufacturer Symphony posted a 6% top-line outperformance, but missed analyst expectations on the Ebitda and net profit owing to higher advertising and promotion spends, freight and warranties. Similarly, white goods manufacturer Whirlpool beat top line by a high single digit versus consensus driven by seasonal stocking. However, historically-low product margins led to an even steeper miss on Ebitda.
Companies, meanwhile, are optimistic that the festive season demand should augur well and make up for the lost ground. “We expect to see a strong bounce back in August-September, signs of it are already visible in August. I see this getting accelerated with the early festive season and primary sales should see a pick up now giving confidence that Q2 will see a healthy bounce back and Q3 ending up being a decent quarter,” Poddar of Bajaj Electricals said.
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“Second quarter, which is the period from July-September is usually lean for cooling products. However, the start of the festive period may witness a spurt in demand. It will be interesting to see the impact of myriad of factors such as inflation, movement in crude oil prices, rupee behaviour, and geopolitical challenges,” said Jitender Verma, chief financial officer, Voltas.