Consumer durables giants like Voltas and Havells India experienced a surge in their stock prices on April 2, propelled by Met Office warnings of an impending heatwave due to extreme weather conditions.
Mrutyunjay Mohapatra, Director General of the IMD, indicated that temperatures are anticipated to surpass normal levels across most regions of the country from April to June. He further noted an expectation of prolonged heatwave durations, forecasting 10-20 days of intense heat as opposed to the typical four-eight days during April-June.
In response to the heatwave alert, shares of air cooler and air conditioner manufacturer Voltas witnessed an intraday surge of 5.4 percent, while electrical goods giant Havells India observed a notable 2.5 percent increase in its stock value.
However, a report from ICICI Securities refuted claims suggesting that the heatwave would substantially impact the revenue growth of summer products. This skepticism suggests that while market sentiment may be influenced by weather forecasts, the direct correlation between heatwave warnings and consumer durables sales remains uncertain.
As the stock prices of Voltas and Havells India soared amidst heatwave warnings, analysts have cast doubt on the direct correlation between weather forecasts and consumer durables sales.
“While the common belief suggests that heatwaves drive up the sales of summer products like fans, air coolers, air conditioners, and refrigerators, historical data does not entirely support this notion,” stated the broking firm in a comprehensive report.
Surprisingly, during the fiscal years 1992-2002, a period encompassing three heatwaves in India, Voltas reported a revenue Compound Annual Growth Rate (CAGR) of just 3.7 percent. Similarly, there were no heatwaves in India during FY02-FY12, yet summer product companies boasted higher revenue CAGR during this period.
The analysis further underscored that the dynamics influencing consumer durables sales are more nuanced than mere weather patterns. Factors such as increased affordability of products, consistent launches of innovative offerings, and robust distribution expansions play pivotal roles in driving growth within the sector.
Furthermore, the Fast-Moving Electrical Goods (FMEG) companies faced challenges during FY22-FY24, grappling with steep inflation followed by deflation. Despite these fluctuations, the launch of Bureau of Energy Efficiency guidelines and strategic price adjustments in FY23 significantly influenced market dynamics.
Looking ahead, the migration of users from the unorganized to organized sector is expected to propel revenue growth for FMEG companies, while a focus on premiumization is poised to enhance profitability. However, analysts caution that near-term performance may remain subdued, potentially impacting stock valuations.
Amidst this backdrop, Havells India emerges as a standout choice, boasting the most diversified product portfolio and a steadfast commitment to premiumization. As the industry navigates through uncertain waters, Havells India remains the top pick for ICICI Securities, signaling confidence in its long-term growth trajectory.
Sources: moneycontrol.com
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