The domestic consumer durables market could report a low double-digit revenue CAGR for over the next decade, led by low penetration of certain categories and stronger brands looking to consolidate their market positioning, according to a report by BNP Paribas on the Indian consumer durables market.
“The consumer electricals industry is witnessing a market share shift from the unorganised to the organised sector. The disruptions such as demonetisation, GST implementation and the pandemic have hastened such market-share shifts. We estimate that 30% of the industry is still unorganised which presents a huge opportunity to listed Indian players over the medium term to further consolidate their market share. Helped by such market-share gains, we expect organized sector to grow at a faster rate, closer to mid-teens over next decade,” according to the report released on Monday.
However, it said, commodity inflation could be impact demand as well as put pressure on margins of companies. Commodity inflation, demand slowdown and rising interest-rate scenario are obvious near-term challenges, it said.
A real-estate cycle revival can add strong tailwinds to the sector; while a correction in commodity inflation can ease margin pressure, it added.
Household appliances and consumer electronics saw an uptick in demand as the pandemic forced consumers to spend more time indoors. As a result, products such as washing machines, laptops and others saw an uptick in demand.
This will help companies clock revenue growth of 22% year-on-year in FY22.
“While covid impacted revenues in 4QFY20 and FY21, the sector recovered sharply with pent-up demand playing out. Thus, we estimate FY22 revenue growth at 22% (using Bloomberg consensus for non-covered companies), helped by a low base. Importantly, we estimate the revenue growth reverting to the long-term trend. We expect the same to happen by end-FY23 as seasonal products like ACs and air coolers are yet to experience a full summer without lockdown,” according to the report.
It estimates that the aggregate revenue of ten companies in the consumer-durables space had a double-digit CAGR over the past decade.
It expects stronger brands to consolidate their market position backed by aggressive growth strategies.
“Many legacy brands have failed to capitalize on their strengths and have been caught off guard by competition from new entrants in their product segment. We see the trend continuing over the next decade. In this light, we find Havells, Polycab, Voltas and Whirlpool to be aggressive, while Crompton is lagging a bit. Orient, for its size, has so far surprised positively,” it added.
It also pointed to a stronger demand for consumer durables in rural markets as well as small town India.
“Commentary from various companies suggests that rural India offers the next big growth opportunity, led by improving penetration. Thanks to the government’s rural electrification drive, the power availability has been improving over the past few years in Tier 3/4 towns and villages – a precursor for usage of electrical products,” it said. Livemint