With the mercury rising and the India Meteorological Department IMD forecasting a strong summer, Jefferies expects select mid-cap companies to produce fans, ACs, refrigerators, agri pipes, air coolers and pumps to emerge as key beneficiaries of rising demand. Jefferies sees a 14 per cent sales growth and 110 basis points sequential rise in operating profit margin for six companies namely Crompton Greaves Consumer Electricals, Havells India, V-Guard Industries, Amber Enterprises, Finolex Industries and Supreme Industries in the March quarter.
We see Crompton Consumer, Havells India, V-Guard, Amber, Finolex Industries, and Supreme Industries as key beneficiaries of a good summer. Supreme Industries is one of our top picks. However, in view of stretched valuations and continued margin weakness, we retain hold on Havells and Whirlphool of India. Astral's Hold 9 MFY 23 volume growth at 20 per cent lags that of Supreme Industries at 35 per cent, it said.
On February 28 IMD predicted a hot summer March-May with above-normal temperatures in most parts of North East, East, Central India and some parts of North West India. Most areas of North West, West, Central and East North East India are likely to have below normal rainfall.
In our coverage, the key sectors that could benefit from a good summer are fans, ACs, refrigerators, pipes mainly Agri air coolers and pumps. Q 4 Jan-Mar sales are usually 30 -- 35 per cent of their annual mix. Construction activity pipes, tiles usually peak pre-monsoons. It said that Margins tend to expand QoQ, because of better op-leverage volumes.
Jefferies said ACs, refrigerators and fans are key summer-centric products. It noted that Crompton Greaves Consumer is the market leader in fans with 28 per cent share and residential pumps with 25 per cent-plus share.
Havells India, with more than 18 per cent of its mix in Lloyd, alluding to volume market share gains, said Havells India has posted good sales over the last 4 -- 5 quarters.
A hotter summer could benefit V-Guard's stabilisers, 20 per cent of sales fans and pumps, it said. Whirlpool of India has a stronger holdings in refrigerators and washing machines, with 60-65 per cent of the mix being attributed to ACs, it noted.
Jefferies noted that Crompton, Havells India and V-Guard also sell air-coolers. In Q4 FY23, we expect average sales growth of 10 per cent YoY for these cos, with 70 bps QoQ expansion in OPM. It said there was good seasonality for sales margins during the summers Q 4 -- Q 1 and there was good seasonality.
It said the company has 70 per cent of the market share in the contract manufacturing of ACs in India.
It can be viewed as a demand aggregation for the under-penetrated AC industry in India. Jefferies expects to see 15 per cent YoYQ 4 sales growth for Amber, with 70 bps QoQ Ebitda margin expansion.
Offtake in agri-pipes and pumps is usually directly correlated with summers. Finolex Industries is the leader in agri-pipes, with 70 per cent of its pipes mix. Supreme Industries has a diversified product mix with pipes at 65 per cent of its sales 25 per cent of pipes is agri-pipes, while Astral is predominantly present in plumbing and has negligible presence in Agri. PVC resin seems to be stabilising now on margins. In Q 4 we expect 15 per cent YoY Q 4 sales growth, with 210 bps QoQ Ebitda margin expansion, it said.