Consumer durables sector expected to grow; BofA believes these stocks may rally as much as 18%

Consumer durables sector is expected to grow by 36% by the financial year 2025, said analysts at Bank of America Securities (BofA). Helped by this growth, stocks such as Crompton and Voltas are seen to benefit. “We analyzed 12 key categories in India’s home improvement market. Our analysis suggests this market could grow 36% cumulatively over the next three years,” BofA analysts said in a note. They added that 63% of the incremental growth is expected to come from the consumer durables /electricals segment. Analysts are bullish from a long-term perspective on Havells, Crompton, and Voltas but prefer Voltas and Crompton to Havells in the near term.

Stock talk

Buy Crompton Greaves Consumer Electricals shares

BofA has a price objective of Rs 431 per share on the stock, implying an upside of 18% from today’s low of Rs 365 per share. The set price is based on 32x two-year forward PE (10% premium to its long term average). “We think this is justified due to 1) favourable positioning as the leading player in lighting, fans & pumps, 2) potential for continued share gains in fans, and quick scale-up kitchen appliances due to acquisition of Butterfly,” analysts said. 

Crompton is believed to sustain margins amid cost inflation. The company’s initiatives in tier-2/3 towns and rural areas to further extend its footprint is also seen as a positive. The stock has fallen 15% so far in 2022.

Neutral rating on Voltas

Voltas share price has a Neutral rating from BofA analysts with a price objective of Rs 1,335 per share. The price objective implies a 7% upside from Wednesday’s lows of Rs 1,245 apiece. BofA said they value the Unitary Cooling Products business at 37x two-year forward earnings, with growth potential over in the under-penetrated Air Conditioners’ market. “We believe upside is already priced in & reiterate our Neutral rating. UCP biz is expected to contribute 56% of revenue & 64% of EBIT (FY22E) for Voltas. Given the increase in key commodity costs, we believe volume growth to remain subdued and expect further price hikes,” analysts said.

Underperform rating on Havells

Havells price objective is set at Rs 916 per share, expective a downside of around 20% from today’s lows. “ We think valuations to de-rate are justified given 1) inflationary pressure across the consumer basket to put margins under pressure, 2) demand/volume growth to remain subdued for FY23, 3) expect margin recovery in Llyod to be further away in absence of volume growth,” analysts said.