Buy Whirlpool and Orient Electric shares for over 20% gains as demand for consumer electronics grows

By: |
September 02, 2021 4:16 PM

Consumer electronics manufacturers saw muted demand during the first two months of the April-June quarter owing to the second wave of covid-19, however, in June demand started picking up.

Although the demand is improving, consumer electronics firms are still battling elevated commodity costs. (Image: REUTERS)

Consumer electronics manufacturers saw muted demand during the first two months of the April-June quarter owing to the second wave of covid-19, however, in June demand started picking up, domestic brokerage and research firm Motilal Oswal observed. “As per current trends, demand remains robust at end-1QFY22, with a gradual scale-up expected on a month-on-month basis. The upcoming festive season holds the key for offtake across various categories,” the brokerage firm said. Along with the pickup in demand, the consumer electronics and durables sector is also witnessing consolidation in favour of organised players, which could help listed players.

Although the demand is improving, consumer electronics firms are still battling elevated commodity costs. “With raw material costs elevated in the April-June quarter, gross margins were impacted. The intensity of the impact varied, with consumer electricals less impacted against consumer durables,” analysts at Motilal Oswal said. They added that management commentary suggests price hikes of 8–12% across various categories in Consumer Electricals (barring Cables and Wires) in the first half of 2021. “Further price hikes could act as a catalyst for the stocks, especially for the White good players.”

Stocks to buy

Orient Electric – Buy

Target price – Rs 435

Orient Electric is the top pick for analysts at Motilal Oswal in the Electricals segment. ”As the economy recovers from the pandemic, it (Orient Electric)  could see strong margin expansion. We forecast a revenue / EBITDA / adjusted PAT CAGR of 17%/19%/23% over FY21–24,” analysts said. They added that Orient Electric is trading at a discount of 37% and 11% when compared to Havells and Crompton Greaves. 

Currently, Orient Electric’s revenue is largely driven by fans. But, the company has a product expansion strategy in place to improve business. “Such measures give us the confidence that the business is moving in the right direction – towards increasing the structural growth rate of the product portfolio,” the brokerage firm added. Currently, Orient Electric share price trades at Rs 326 per share, this translated to an upside potential of 33%.

Whirlpool India – Buy

Target price – Rs 2,650

Whirlpool is the top pick among white goods manufacturers. The company commands a strong 17-18% market share in the refrigerators and washing machines category. “It has been gaining market share in volume terms and its product portfolio is poised for strong structural growth of 12–14% over the next decade,” the brokerage firm said. “On a relative basis, demand for washing machines and refrigerators could potentially surprise over the next six months against a seasonal category such as ACs — provided consumer demand holds good as the economy opens up,” it added.

Whirlpool’s management has further expressed intent to using India as an integral part of its global sourcing, walking on the China+1 strategy. Currently, the stock is quoting Rs 2,174 per share, implying an upside of Rs 22% from current levels. 

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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