Consumer durables sales to rise, but raw material costs a concern

Consumer durables companies are likely to report better sales in the June quarter, supported by healthy demand. However, a Kotak report suggests higher raw material costs are expected to put significant pressure on profit margins across the sector.

Consumer durables companies are likely to report better sales in the June quarter, supported by healthy demand in key product categories. However, higher raw material costs are expected to put pressure on profit margins, according to a Kotak Institutional Equities 1QFY27 consumer durables earnings preview report.

Wires and Cables to Lead Growth

The brokerage expects the wires and cables segment to lead the sector's performance during the quarter, driven by higher metal prices and improving volumes. "Volume growth is likely to improve sequentially. Pricing growth is expected to remain healthy as copper and aluminium prices were up around 51 per cent and 57 per cent year-on-year, respectively, on an M-1 basis in the first quarter," the report said.

Performance of Home Appliances

Kotak expects room air conditioners (RACs) to remain the best-performing appliance category in the June quarter, helped by a weak base and price hikes. The report also expects washing machines and televisions to post healthy growth, while refrigerator sales may remain weak.

Electrical Consumer Durables Outlook

In the electrical consumer durables segment, the brokerage expects growth to be supported by price hikes in fans and strong demand for small domestic appliances, kitchen appliances and water purifiers. "We expect pricing-led growth of 10-12 per cent in fans, even as volumes could remain weak. TPW fans and air coolers are likely to disappoint despite a weak base, while small domestic and kitchen appliances, along with water purifiers, are expected to perform well," the report said.

Impact on Profitability

Despite stronger sales, Kotak said higher raw material costs are likely to affect profitability across the sector. "Most companies have only partially passed on raw material inflation through price hikes and lower channel incentives, which is likely to weigh on gross margins," the report said.

It added that lower advertising and promotion spending could help reduce some of the pressure on margins.

Overall, the brokerage expects price hikes, favourable base effects and healthy demand across select product categories to support consumer durables sales in the June quarter, while rising raw material costs remain the biggest challenge for margins. (ANI)

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