Consumer durables sales likely to rise in June quarter, but rising raw material costs could hurt margins: Kotak
New Delhi, July 6
Consumer durables companies are likely to report better sales in the June quarter, supported by healthy demand in key product categories. However, higher raw material costs are expected to put pressure on profit margins, according to a Kotak Institutional Equities 1QFY27 consumer durables earnings preview report.
The brokerage expects the wires and cables segment to lead the sector's performance during the quarter, driven by higher metal prices and improving volumes.
"Volume growth is likely to improve sequentially. Pricing growth is expected to remain healthy as copper and aluminium prices were up around 51 per cent and 57 per cent year-on-year, respectively, on an M-1 basis in the first quarter," the report said.
Kotak expects room air conditioners (RACs) to remain the best-performing appliance category in the June quarter, helped by a weak base and price hikes.
The report also expects washing machines and televisions to post healthy growth, while refrigerator sales may remain weak.
In the electrical consumer durables segment, the brokerage expects growth to be supported by price hikes in fans and strong demand for small domestic appliances, kitchen appliances and water purifiers.
"We expect pricing-led growth of 10-12 per cent in fans, even as volumes could remain weak. TPW fans and air coolers are likely to disappoint despite a weak base, while small domestic and kitchen appliances, along with water purifiers, are expected to perform well," the report said.
Despite stronger sales, Kotak said higher raw material costs are likely to affect profitability across the sector.
"Most companies have only partially passed on raw material inflation through price hikes and lower channel incentives, which is likely to weigh on gross margins," the report said.
It added that lower advertising and promotion spending could help reduce some of the pressure on margins.
Overall, the brokerage expects price hikes, favourable base effects and healthy demand across select product categories to support consumer durables sales in the June quarter, while rising raw material costs remain the biggest challenge for margins.
— ANI
Reader Comments
Honestly, every quarter they say raw material costs are rising and then prices go up. But our salaries don't rise by 51% or 57% like copper and aluminium! 😅 The middle class is bearing the brunt. Washing machine prices are already too high for many families.
Good analysis from Kotak. The wires and cables segment making a comeback makes sense with all the new housing projects and infrastructure work happening. But local manufacturers in smaller towns are struggling to pass on costs - that's the real ground reality.
Fans and coolers disappointing despite a weak base? That's because everyone is installing ACs now! But this report doesn't mention how e-commerce discounts are actually helping consumers tide over price hikes. Paytm and Amazon sales are saving our pockets! 😄
As a small electronics retailer in Delhi, I can confirm the demand is there for water purifiers and kitchen appliances - everyone wants healthy living these days. But margins are squeezed because companies aren't giving us enough support on pricing. The big players should help dealers too.
Interesting data from Kotak. The 51% copper and 57% aluminium price increases year-on-year are massive. Even with partial pass-through, consumers will feel the pinch. The report's point about lower ad spends protecting margins is smart - companies should focus on quality rather than flashy ads.
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