Cooling product makers hot picks before summer
Blue Star, Voltas, & Symphony have seen gains of 18-35% since Feb
Consumer durable makers — especially cooler, air conditioner (AC) and refrigeration system manufacturers — are expected to rake in the moolah as the temperature is set to rise in north India and other regions of the country over the next few months.
According to a summer forecast for the March-may 2021 period, issued on Monday, the India Meteorological Department (IMD) has said that it expects day temperatures to remain above-normal in select regions across the country.
“During the upcoming hot weather season (March to May), above normal seasonal maximum temperatures are likely over most of the sub-divisions of north, northwest and northeast India, a few sub-divisions from eastern and western parts of central India, and a few coastal subdivisions of north peninsular India,” the IMD said.
The possibility of this, say analysts, bodes well for cooling and refrigeration system makers over the next few months. The government’s production-linked incentive (PLI) scheme is another factor, they believe, which will help companies in this sector.
“Temperatures have just started warming, particularly in north India. Our dealer checks suggest a healthy trend in consumer durables demand, with optimism that AC sales will pickup with the summer onset,” wrote Lavina Quadros and Apoorva Bahadur of Jefferies in a February 25 note.
Channel stocking in the December quarter has helped dealers as product prices have risen 5-6 per cent since January 2021. Consistent higher temperatures in the next twothree weeks are important for the next leg-up in Voltas/blue Star from the current levels, the analysts note.
At the bourses, the consumer durables index has performed mostly in line with the frontline indices since the March 2020 low, rallying 85 per cent, as compared to an 89 per cent rise in the Sensex during the period.
The surge in some individual stocks, linked to the consumer goods and electronics segment, has been sharper, with Dixon Technologies and Amber Enterprises surging 200 per cent-400 per cent during this period, ACE Equity’s data showed. Among cooling products makers, Blue Star, Havells India, Voltas, Whirlpool, and Symphony have moved up between 45 per cent and 145 per cent since then. Of these, Blue Star, Voltas, and Symphony (as well as Johnson Controls-hitachi Air Conditioning India) have seen gains of 18-35 per cent since February 2021.
Rising electricity prices and higher usage with the work-from-home scenario over (WFH) in the past few months, according to Jefferies, have already seen customers willing to spend ~4,000-6,000 extra for a 5star rated AC versus a 3-star one.
“Inverter ACS continue to gain share with non-inverter AC sales reducing substantially in Tier-i cities and declining in Tier II-III cities. LG has launched products with additional features and slightly higher pricing, auguring well for Voltas, which is seeing stock-outs in some locations. Blue Star, Havellslloyds, and Hitachi are holding their ground on pricing/customer interest,” the Jefferies note said.
That said, investors should be mindful of the rising commodity prices, which can act as a catalyst for product manufacturers to pass on the rising cost to consumers, thereby denting sales. This, to some extent, is likely to be offset by a gradual rise in salaries of consumers of these products over the next few months.
Investors should also note that many of these stocks have moved past their consensus one-year target prices, turning the risk-reward equation unfavourable.