Electrical appliances industry to grow 8-10% in FY23, says Crisil Ratings

Organised electrical and kitchen appliances industry is expected to see higher growth of 8-10% in FY23 as consumers prefer branded products, according to CRISIL Ratings. Moreover, increasing usage of smart technologies, and similar buying behaviour among rural as well as urban consumers have supported branded product sales.

The rise in branded electrical appliance sales was helped by the implementation of the Goods and Services Tax in July 2017 that supported manufacturers in the organised sector to streamline their supply chains, operations, and distribution networks to benefit from input-tax credits, cost-efficient logistics, and uniform taxation of final products across states, the report stated.

The CRISIL Ratings analysis is based on eight companies, which account for about half of the Rs 62,000 crore industry.

“The perception that purchase of electrical appliances is a low-involvement decision is fast changing. Kitchen equipment, lighting solutions for home, electric fans and coolers are now increasingly bought after careful evaluation of brands on functionality, technology, ease of use, and strong after-sales service,” said Mohit Makhija, Senior Director, CRISIL Ratings.

He added that CRISIL Ratings believed that increased demand for smart appliances will push manufacturers to invest in technology research and development.

Higher Margin and Improved Liquidity

CRISIL Ratings noted that operating margin declined about 130 basis points (bps) to 11.5% (approx.) last fiscal, albeit on a higher base of fiscal 2021 that had seen a significant increase aided by pent-up demand. The operating margin is expected to moderate further to 11% this fiscal, but will still be higher than the historical level of 10-10.5%.

“The manufacturers increased product prices by 12-14% last fiscal, limiting the impact on operating profitability. This fiscal, too, operating margin is expected to see a marginal decline of about 50 bps despite elevated input prices, highlighting stable demand and ability of players to pass on increased input costs,” said Anand Kulkarni, Director, CRISIL Ratings.

Meanwhile, companies have started to focus on deleveraging its balance sheet and it has improved the capital structure and coverage ratios of organised players in the electrical appliances industry. The overall debt-to-Ebitda ratio is expected to be about 0.6 time this fiscal against 1.5 times four years ago, and interest coverage ratio is estimated to be about 13 times versus 10 times. Besides, liquidity of the players is estimated to be above Rs 4,000 crore this fiscal compared to Rs 3,000 crore four years ago. However, any material impact on profitability due to a rise in input prices needs close monitoring .

Stocks To Watch

Some of the top companies in this space are as follows: Whirlpool India, Bajaj Electrical, TTK Prestige, Eureka Forbes, Symphony, Orient Electric, IFB Industries, Hawkins Cookers, Butterfly Gandhimathi Appliances and Stove Kraft.