The Indian consumer durable sector is expected to have a revenue growth of around 20% this fiscal, driven by electrical appliances.
The revenue jump is followed by the flattish run last fiscal, according to CRISIL Research. 35% of sector revenues are expected to grow twice as fast as white goods makers 65% of sector revenues.
Consumer durables makers have recovered faster than other consumer discretionary sectors, such as apparel and jewellery retail, driven by higher demand for home improvement products during the prolonged stay-at- home period.
Consumer electricals will continue to outshine, with 23 -- 24% revenue growth expected this fiscal, compared to 14 -- 15% for white goods, based on factors such as shorter replacement cycle, necessity and smaller ticket size, says Gautam Shahi, Director, CRISIL Ratings.
The operating profitability will be a bit lower because of costlier inputs and price hikes. The sector's margins are expected to moderate by 100 -- 150 basis points bps this fiscal, despite higher revenues.
The impact of lower price hikes will affect the profitability, as key commodities such as copper, aluminium and polypropylene 70% of the raw material requirement of the consumer durables sector have stabilised, according to CRISIL Rating.
Last fiscal, the sector generated approximately 2 lakh crore revenue, which includes consumer electricals excluding mobile phones and white goods. Consumer electrical makers have hiked prices by 8 % this fiscal, much more than the average 3 % increase by white goods makers.
The white goods include washing machines, televisions, refrigerators and air conditioners, and consumer electricals, including fans, small kitchen and cooking appliances, and lighting products, among others.
CRISIL Rating says the operating profitability of white goods makers is seen as moderate at 6 %, representing an impact of up to 200 basis points bps compared to 10 % for consumer electrical makers, which would have an impact of 50 -- 100 bps.
Traditional strengths of low leverage gearing were 0. Despite the dent in profitability. Says Sushant Sarode, Associate Director, CRISIL Ratings, said that 2 times asset-light business models and healthy cash accrual will ensure credit profiles remain stable this fiscal.
Over the medium term, capital spending may increase as the government's Production-Linked Incentive PLI scheme for white goods components Rs 6,238 crore spread over fiscals 2022 -- 2029 aims at increasing the indigenisation of imported components. He believes that capital spend is likely to be done in a phased manner, which would ensure credit profiles remain stable, he adds.