Chennai: Consumer durables are unlikely to escape the growth slowdown in the current financial year. Slow volume growth are expected to hit the profitability of companies in this space.
The consumption slowdown has already hit several consumer product categories like automobiles, fats moving consumer goods, quick service restaurants and jewellery. Despite a prolonged summer season for cooling appliances, consumer durables may not tide over the slowdown.
"We believe that the current slowdown could possibly tighten its grip on consumer durables despite expectations of a strong Q1 FY20,' finds Equirus Capital.
Though the heat wave had blown up demand for cooling appliances, leading to a healthy double-digit growth this summer, the growth was also attributable to the low base of last year.
For consumer durables, the festive season of Q3 and Q4 accounts for a large part of the annual sales. If the slowdown persists for the next two quarters, it will affect the sales of consumer durables as well.
The slowdown may also hit the profitability of consumer durable companies. Most companies were not able to hike prices of products due to unfavourable market conditions in FY19.
According to Kamal Nandi, Consumer Electronics and Appliances Manufacturers Association President and Business Head and Executive Vice President of Godrej Appliances, companies had taken a three per cent hike in prices of refrigerators from the December-March levels. However, after the GST reduction to 18 per cent, refrigerator prices are still 4 to 5 per cent lower than last summer.
In January 2018, after the table change for fixed speed ACs and variable speed ACs, the prices of air-conditioners had gone up by 15 per
cent. However, compared to
last summer, prices were stable. In the recent budget, custom duties of indoor units and outdoor units of air- conditioners have been increased from 10 per cent to 20 per cent. While this would increase the cost, lower volumes will restrain companies from hiking prices. But if not passed on to end-users, this could act as a major near-term drag.
Equirus Capital also finds that pricing could come under pressure due to rising competitive intensity as there is a strong possibility of some multi-national brands launching low-priced refrigerator and air conditioner variants in order to target higher volumes and market share gains. Some of the Indian companies may also follow suit by either coming up with low-priced variants or cutting prices of the existing product portfolio.
However, summer sales had helped many refrigerator and air conditioner producers to normalise inventory levels, which had weighed heavily on them in FY19.
