White goods & durables: Switch and switchgear industry: Organised sector domination to continue

Preference for safe products and stringent technical standards for manufacturing switch and switchgear have led to the organised sector dominating these two markets in India (unlike most sub-segments of the white goods & durables industry). We believe organised players such as Havells India (Havells) and V-Guard Industries will likely be net beneficiaries of further shift of share from the unorganised segment on the back of high inflation in commodity costs and supply chain disruptions. The switch and switchgear market is expected to reach size of Rs62bn and Rs286bn respectively by FY23E. Havells’ share in switch sub-segment is 13%. Our top picks in the sector: Havells (BUY) and Crompton Greaves (ADD).

Our earlier reports in this series are: Pressure cooker, Fans, Air coolers, Cookware and Mixer grinders

• Steady growth rates of switch and switchgear market: The switch market is growing at a steady CAGR of ~9.2%. It is expected to reach Rs62bn in FY23E. The switchgear market too is growing at a steady CAGR of ~9.3%. The size of domestic switchgear industry was Rs183bn in FY18 and is expected to reach Rs286bn in FY23E (Source: IEEMA).
• Modular switches – the growth driver for switch market: Since modular switches are 4-5x more expensive than traditional switches, they command higher share by value. They are witnessing higher demand, especially in urban areas. The modular switch market is expected to grow at 11.2% CAGR to reach a size of Rs41.5bn in FY23E. The share of modular switch is estimated to increase to 67% of the total switch market by FY23E. (Source: Crisil research)
• Competitive landscape for switch market: Switch market is dominated by the brand Anchor (Panasonic Life Solutions India Private Limited) with a massive market share of 36%. Havells’ market share is 13%.
• Low-voltage (LV) switchgear is the consumer category: Residential demand is for LV switchgear only. The sub-segment formed roughly 70% of total switchgear market in India in FY18. We believe: (1) rising customer preference for safer products, (2) rising real estate demand, and (3) improved electrification will likely drive the growth for LV switchgear market.
• Sector view & top picks: Considering the strong return ratios, healthy growth potential and low penetration levels, we remain structurally positive on the white goods and durables sector. We also expect the migration from unorganised to organised sector to steadily generate value. Havells India and Crompton Greaves are our top picks.

Valuation summary

Source: Company data, I-Sec research

TVJ Bureau