Talking about the white goods and durables sector, now the consumer’s focus has shifted from the unorganized sector to the organized sector. Due to which stable companies are getting benefit. At the same time, now the sector is getting better demand after coming out of the challenges of Kovid 19. Brokerage house ICICI Securities has a positive view on the sector. The brokerage says that the view for this sector is positive considering the strong return ratio of companies, healthy growth potential as well as low penetration levels. Some stocks may outperform going forward. However, some risk factors are concerned about growth.
Why a positive view on the sector
Brokerage house ICICI Securities says there is a structurally positive view on the white goods and durables sector, keeping in mind the strong return ratio, healthy growth potential and low penetration levels. The brokerage expects that the continuous migration from the unorganized sector to the organized sector will generate value. However, higher than expected crude oil prices, delay in price hike to protect margins and any delay in price hike are risk factors for the Irrational Competition Sector.
Price hike impacts volumes
The brokerage house says that there are reports that the GST rate on LED bulbs may increase from 12 percent to 18 percent. The brokerage house says that if there is an increase in tax for competitive segments like lighting, then it will affect the profits of the companies associated with it. This can help small and unorganized sector companies to increase market share. In fact most of the durable companies have increased prices by more than 20 per cent in the last 18 months, so another price hike could impact their volumes.
2-5 percent impact on earnings
The brokerage says that due to the price hike, there may be down-trading in white goods and durables companies. Durable companies like Crompton, Orient and Bajaj Electricals generate over 20 per cent revenue from the lighting segment, while Havells generates 10 per cent revenue. Any increase in tax will have an impact of 2-5 per cent on the earnings of the companies. Currently, the brokerage house has a positive view on the white goods and durables sector. The brokerage has included Havells (BUY) and Crompton Greaves (BUY) in its top picks.
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of digitnews. Markets are risky, so take expert opinion before investing.)