Consumer durables 2022 outlook: Premiumisation efforts to drive higher profits, check stocks to buy

Stocks to buy 2022: Consumer durable firms saw their margins improve in 2021 despite a sharp rise in input material costs and supply chain disruptions. In the coming year, analysts at ICICI Securities foresee flat margins on-year basis but believe new categories such as trimmers, hairdryers, and dishwashers would likely drive strong volume growth. “Due to strong operating leverages, we expect most companies to report PAT growth higher than revenue growth,” they added. The brokerage firm has pinned a ‘buy’ rating on Havells India and an ‘Add’ rating on Crompton Greaves and Whirlpool of India.

Recap and outlook 

In 2021, consumer durable stocks under ICICI Securities’ coverage helped investors pocket 41.8% returns. With stock such as Bajaj Electronics and Dixon Technologies doubling investor’s money. “Multiple tranches of price hikes, hedging contracts, reduction in ad-spend and cost efficiency programmes helped the companies maintain their profitability in this challenging environment,” they added.

ICICI Securities predicts input material inflation to be largely over in 2022. Consumer durable companies have managed to tackle rising input material prices by implementing price hikes, tweaking revenue mix, premiumisation efforts and cost-saving initiatives. “Due to this, we believe impact of inflation would be over in 2022. Also, the inflation will be part of base quarters now,” they said. In 2022, the brokerage firm believes the kitchen appliance segment will do well and higher real estate demand will translate into more spending on consumer durable goods. 

Stock calls

Havells India: Buy

So far this year, Havells India share price has soared 52.54% to now trade at Rs 1,388 per share. “Strong volume growth (market share gains), high single-digit price hikes and recovery in Lloyd will likely lead to strong growth for Havells India,” ICICI Securities said. The brokerage firm expects Havells to report revenue and PAT CAGRs of 17.7% and 22.5%, respectively over FY21- FY24E. The target price set for the company is Rs 1,650 apiece, implying 19% upside. 

Whirlpool of India: Add

Whirlpool stock was bettered down in 2021, falling 33% so far to now trade at Rs 1,744 apiece. “After losing sales in two consecutive summer seasons due to covid lockdowns (key season for sales of refrigerators and ACs), we believe Whirlpool will strongly bounce back with high sales,” analysts said. The company acquisition of Elica is seen as value accretive. The target price for Whirlpool is set at Rs 2,500 per share, translating to an upside of 43%.

Crompton Greaves: Add

The stock rose 14% this year and is currently trading at Rs 431 per share. “Crompton is dedicated to investing in R&D to launch consumer-centric products to drive premiumisation and gain market share,” ICICI Securities said. “We remain positive on the company’s business model due to its competitive advantages and growth opportunities,” they added. The brokerage firm has a Rs 504 per share target price set on Crompton Greaves. This suggests an upside potential of 17%.

Bajaj Electricals: Add

Bajaj Electricals stock was the top gainers among consumer durables in 2021. The stock rallied 110% and currently trades at Rs 1,299 per share. “We believe de-merger of EPC business will help the company improve its profitability and cash generation,” the brokerage firm said. The target price set on Bajaj Electricals hints at a downside of 10%.

Dixon Technologies: Hold

Shares of Dixon Technologies have soared 103% so far in 2021. “We remain positive on the company’s business model due to strong competitive advantage and growth opportunities,” ICICI Securities said. The brokerage firm expects Dixon Technologies to report PAT CAGR of 55.9% over FY21-FY24E and RoE to be upwards of 30% over FY23-24. The target price of Rs 5,200 per share implies a downside of 6%.