Shares of air conditioning (AC) equipment makers such as Voltas, Blue Star and Johnson Controls-Hitachi Air Conditioning India, are trading 18-28 percent higher from their July-August lows, with some even near 52-week highs. While the cut in corporate tax rates are responsible for part of these gain (given the estimated 4-12 percent rise in earnings), the strong sales momentum, which has helped companies beat slowdown blues, is also keeping the street and analysts bullish on these counters.
Channel checks by analysts continue to suggest that demand for cooling products remains strong. Led by strong a summer season the companies clocked robust sales during June quarter and were also able to clear the high channel inventories. However, even with the monsoon season setting thereafter, the momentum has continued to be strong during the traditionally lean September quarter. Analysts estimate AC sales to have grown by a healthy 15-20 percent during the September quarter. The June quarter had seen AC sales grow by 36 percent year-on-year. Analysts at Motilal Oswal believe that post the bumper summer season, channel refilling itself will drive growth for air conditioners, and hence, the category may be immune to consumption slowdown in the near term.
Cooling products are expected to have a bumper September quarter, after a delayed winter was accompanied by a strong heatwave starting late March 2019, say analysts at Antique Stock Broking. The room AC players have also been bullish in their commentary with some indicating a 15-20 percent growth for the industry, say analysts. Sales growth had remained in a similar range during July-August period too.
Among stocks, Voltas remains the top pick of most analysts, as the company has been able to maintain its leadership in the room AC segment and the traction is expected to continue. Even Blue Star has performed well aided by robust sales growth in south India. Havells may also have benefitted from good AC sales, but the Street remains watchful as its lighting, switchgear and cables segments may see some impact due to slowdown in real estate and government orders. Some analysts believe that the Lloyd AC business (acquired by Havells) may take at least two years to stabilise besides further capital towards branding and distribution.