Price hikes and demand trade-off key watch for durables sector in FY27: Report
New Delhi, June 3
Demand elasticity in the consumer durable sector is likely to be tested in FY27 as sharp input cost inflation forces consumer durables companies to push through steep price hikes of 10-20 per cent. With the sector already grappling with weak volumes in wires & cables and room ACs in 4QFY26, the brokerage flags pricing power versus volume growth as the key monitorable ahead.
The outlook remains mixed across sub-segments, with solar-linked categories and lighting likely to hold up better than ACs and wires in the near term, according to a brokerage report by Kotak Securities.
According to Kotak Securities, 4QFY26 was a "mixed bag" for the durables space. The brokerage noted that commodity tailwinds drove strong earnings in Wires & Cables, even as volume growth disappointed due to high channel inventory and Middle East conflict-related disruptions.
"W&C companies reported 26 per cent/23 per cent yoy revenue/EBIT growth in 4Q, aided by RM tailwinds, even as volume growth disappointed," Kotak said. It added that steep price hikes were necessitated by a sharp rally in key input prices, and the impact on consumer demand remains a key monitorable going forward.
In Electrical Consumer Durables, Kotak sees a gradual recovery taking shape, aided by price hikes and tailwinds in solar and kitchen appliances. "ECD companies posted 5.1 per cent yoy topline growth and ~10.5 per cent yoy decline in EBIT versus 1 per cent/19 per cent yoy topline/EBIT decline in 9M," the brokerage said.
Lighting also held up better, supported by stable pricing. However, the report highlighted that the real test for pricing power will come in FY27 as companies pass on the full impact of higher copper, steel and other raw material costs.
Room ACs were the weakest link in 4Q, with the season delayed by a weak March. Kotak noted that primary sales of cooling products were impacted as the summer started late, and the subsequent 13-18 per cent price hikes taken to offset RM inflation could weigh on volumes.
"Primary sales of cooling products were impacted in March due to a weak start to the summer... RM inflation has necessitated further price hikes of 13-18 per cent. The impact of such steep price hikes on consumer demand remains a key monitorable," Kotak said.
Kotak Securities' view suggests a two-speed sector: categories linked to capex, electrification and replacement demand like solar products and lighting should remain relatively resilient, while discretionary categories such as ACs and wires face near-term pressure from inventory correction and affordability concerns.
The brokerage will be watching how demand holds up after the recent round of price increases and whether the delayed summer translates into stronger AC sales in 1QFY27.
— ANI
Reader Comments
Interesting that lighting and solar are holding up better. The government's push for renewable energy is real, even in our housing society we're seeing more solar water heaters and LED bulbs. Makes sense that these segments will be more resilient than luxury items like ACs.
I work in procurement for a cables manufacturer in Mumbai. The copper price volatility is insane, up 40% in 6 months. Companies have no choice but to hike prices. But the Middle East disruptions mentioned are also hitting our supply chains hard. Let's see if FY27 brings any relief.
For the common man, this is a double whammy - inflation eating into savings and now even basics like fans and wires getting costly. FY27 could be tough for middle-class families planning home renovations or new purchases. Hope manufacturers find ways to innovate and keep some budget options alive.
The report's point about 'two-speed sector' is spot-on. Solar-linked products have policy tailwinds (subsidies, RPO norms) and replacement demand is inelastic. Meanwhile, ACs are discretionary - a 15% hike could push many to delay purchasing by 1-2 years. Kotak is right to flag this as the key monitorable.
One thing missing from the report - what about rural demand? Wires and cables for new home construction in villages? If prices go up, rural housing might slow down too. And last summer in Chennai was brutal with late rains, so delayed AC demand might bounce back in April-May. Let's wait and watch.
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