Best Consumer Appliances Stock To Buy Now – Research Report By HDFC Sec

Growth attracting competition

We did a roadshow with an industry veteran for consumer appliances. Key discussion was around (1) Robust performance of appliances in CY19, (2) Structural drivers of appliances, (3) Disruption from Chinese players and (4) Winning strategies.

 Robust performance of appliances in CY19: Large appliances have delivered robust growth in CY19. Slowdown pressure was not visible for appliances unlike other consumption categories. RAC was the outlier in CY19 driven by a strong summer-19. Refrigerator and Washing Machine also saw a healthy growth. Our channel checks (7 Jan 2020) also suggest similar trends for large home appliances. TV Panels saw massive change in customer buying between offline and online in 2019. Offline market has declined while online grew sharply. Thereby, overall growth for TV Panel was positive.

 Structural drivers of appliances: Appliances have several structural drivers like (1) Low penetration, (2) Rapid change in customer profile, (3) Suitable to futuristic channel. Large home appliance can sustain low double digit to mid-teens CAGR in the long run.

 Disruption from Chinese players: Higher number of brands in every appliance category and rising share of online reflects a change in customer preferences. Chinese products have been successful in India for mobile and TV panels in a very short span of time. ‘Value for money’ proposition, wider product range and higher focus on online channel have resulted into faster success for Chinese products. Chinese players may disrupt the large appliance categories in the same fashion it has impacted mobile and TV panels.

 Winning strategies: Appliances companies are focusing on diversification, wrt product range, regional presence and distribution channel. However, appliances companies will need to be more agile to counter rising competition. These companies are enjoying rural electrification, category penetration and rising affordability.

However, to sustain market share and margin, companies will need to focus on winning strategies i.e. (A) Deep understanding of customers, (B) Product innovation, (C) Faster increase in distribution reach, (D) Presence in futuristic channels and (E) Aggressive marketing strategies.

Our View

 Our optimism on longevity of appliance sector is driven by (1) Rapid change in consumer affordability & preferences, (2) Rising share of branded products, (3) Multi-year growth opportunity (under penetrated), (4) Untapped rural market (rural electrification, rising rural focused strategy by leading companies) and (5) Scope of premiumisation. Appliances are more sensitive to GDP growth.

Thereby, any improvement in the economy in 2020 will provide better prospects for the sector. We continue to like companies who are leaders in their respective categories and have ability to tap opportunity in other categories. In consumer appliances, we have BUY rating on Havells, Voltas, Crompton Consumer and Symphony.