Last week, two large consumer electrical companies announced their Q3 results. The net margins probably were at their worst but the reaction of the street was not to punish them, but either they witnessed small up move. Given the ultra bullishness which is there on the street, the up move cannot be given that much importance, however there was no fresh wave of selling which is more significant. Now this dis-interest of the street is an indication that from being overhyped and overowned, stocks are now in a state where if there is a positive development, probability of positive reaction of the street becomes high. The question is whether that positive development will come or not?

For that we will have to go back to the history of why some electrical and electronic stocks got re-rated. For companies in this space the change came from a macro change in the power sector. In the last two decades, electrification has been the key to the success of many companies. Electrification not only in terms of reach across the country but also the number of hours it is available has increased in large parts. This has led to an increase in demand for some segments of consumer products, not only have some players grown to have a national presence, but they have also evolved from making pressure cookers to a whole range of kitchen appliances and some even went into making white goods. This led to sharp increase in top and bottom line and their margins also got expanded due to more value addition.

Post Covid, the sharp rise in metal prices did impact some companies, especially the ones which had a substantial wire business. So while their topline moved upward very sharply, the margins did not move up sharply. Also because everyone saw this as an opportunity, there was a mad rush to enter into this space and this sector saw some takeovers. The end result, over competition and wafer thin margins.

Now, there are signs which are coming that companies have slowed their product expansions but focussing on backward integration. How this impacts the business, new product expansion means higher advertisement and launches which would get normalized. Another impact which would come in the very long term is that a number of these companies which have been dependent on China for their raw materials will be able to source some parts domestically. As the focus on domestic manufacturing picks up. Some feeder companies to these manufacturers have started their production in India. So, either there is house backward integration or they are able to source them locally.

One thing which goes in the favor of these companies is that they don’t require much additional capital, for which either they go through equity route or through debt, this means that additional float does not come to market and there is no sudden increase in interest cost. But again these are stocks which might take a long time to perform and in a market where stocks are jumping very sharply one might feel that they are not worth investing in. But for long term investors, bad times are good opportunities to take exposure to companies where the macro environment is positive, which is the case with consumer electrical goods. We take a look at what analysts are suggesting for these companies.

About Companies

Orient Electric Limited is a lifestyle electrical solutions company. The Company is primarily engaged in manufacture/purchase and sale of electrical consumer durables, lighting and switchgear products. The Company has manufacturing facilities at Faridabad, Noida and Kolkata. The Company operates through two segments: Electrical Consumer Durables and Lighting and Switchgear. Electrical Consumer Durables segment consists of the manufacture / purchase and sale of electric fans ceiling, portable and airflow, along with components and accessories thereof, and appliances- coolers, geysers and home appliances. Lighting and Switchgear segment consists of manufacture / purchase and sale of lights and luminaires, including light-emitting diode (LED), street lights and switchgears, including switches and miniature circuit breakers (MCB). Its Home Appliances products include air-cooler, water heater, room heater, dry iron, steam iron, juicer mixer grinder, mixer grinder and more.

Havells India Limited is an electrical consumer goods company. The Company is engaged in manufacturing and distributing equipment for domestic, commercial, and industrial applications. The Company operates through segments such as Cable, Switchgears, Electric Consumer Durables, Lighting & Fixtures, and Lloyd Consumer. Its products range from industrial and domestic circuit protection switchgears, cables, motors, pumps, solar products, fans, power capacitors, led lamps and luminaires for domestic, commercial, and industrial applications, modular switches, water heaters, coolers, and domestic appliances, personal grooming, air purifier, water purifier, air conditioner, television, washing machine and refrigerator covering the entire range of household, commercial and industrial electrical needs. The Company’s manufacturing facilities are at Faridabad in Haryana, Alwar, Ghiloth and Neemrana in Rajasthan, Haridwar in Uttarakhand, Sahibabad in Uttar Pradesh, Baddi in Himachal Pradesh.

Crompton Greaves Consumer Electricals Limited is a consumer electrical company. The Company operates through two segments: Electrical Consumer Durables (ECD) and Lighting. It manufactures and distributes a range of consumer products ranging from fans, pumps and appliances in the ECD segment and a full range of lighting products. Its product portfolio includes ceiling fans, table fans, pedestal fans, wall-mounted fans, ventilating fans, heavy-duty exhaust fans, air circulators, industrial fans, residential pumps, agricultural pumps, solar pumps, specialty pumps, water heaters, air coolers, mixer grinders, irons, light-emitting diode (LED) lamps, LED battens, LED panels, LED streetlights and floodlights, incandescent lamps, compact fluorescent lamps, interior and architectural lighting, and fluorescent tubular lights. The Company markets its products under the Crompton brand name in India. Its manufacturing locations include Goa, Vadodara, Ahmednagar and Baddi.

Finolex Cables Limited is a manufacturer of electrical and communication cables. The Company offers a range of electrical and communication cables. The Company’s wire and cable products are used in applications, such as automobile, lighting, cable television (TV), telephone and computers to industrial applications. Its range of products includes Electrical Switches, light-emitting diode (LED) based lamps, fans, low voltage miniature circuit breakers (MCBs) and water heaters. The Company operates through four segments: Electrical Cables, Communication Cables, Copper Rods, and Others – Trading of Electrical and other goods. Electrical Cables segment manufactures electrical cables and power, and control cables. The communication Cables segment is engaged in manufacturing state-of-the-art, new generation communication cables and traditional telephone cables.

V-Guard Industries Limited (V-Guard) is a company engaged in manufacturing, trading and selling electronic products. The Company’s segments include Electronics, Electricals and Consumer Durables. The Electronics segment comprises voltage stabilizers, digital uninterruptible power supply (UPS) systems and solar inverters. The Electricals segment comprises house wiring cables, pumps, switchgear and modular switches. The Consumer durables segment includes fans, water heaters, kitchen appliances and air coolers. The Company’s products include voltage stabilizers, inverters, dups, solar power systems and inverter batteries, electric, solar and heat pump water heaters, wires and cables, fans, kitchen appliances, air coolers, water purifiers and water purifier. V-Guard’s product range in fans includes ceiling fans as well as table, pedestal and wall fans.

Source for About companies: SR Plus Reports

Stock Reports Plus, powered by Refinitiv, is a comprehensive research report that evaluates five key components of 4,000+ listed stocks – earnings, fundamentals, relative valuation, risk and price momentum to generate standardized scores. Simple average of the above-mentioned five component ratings is normally distributed to reach an average score. Each stock is ranked on a scale of 1 to 10. A score of 8 to 10 is considered positive, 4 to 7 is neutral and 1 to 3 is given a negative outlook. In addition to scores, the report also contains trend analysis, peer analysis and mean analysts’ recommendations.

Disclaimer: The views, scores, research and investment tips expressed herein are not that of Economic Times (“ET”) or its management and have been gathered from various third-party sources. ET does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. The content provided herein including any output of tools/analysis is for informational purposes only and should not be relied upon or construed as an investment advice. ET advises users to check with a certified professional before making any investment decision.

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