Revenues in the durable consumer goods sector would increase by 15 to 18% this fiscal year: CRISIL report

According to a report by CRISIL, the consumer durables sector is likely to experience double-digit volume growth despite mounting pressure on margins, boosting sales by 15-18% to Rs 1 lakh crore this year.

The analysis forecasts a 10-13% increase in demand and volume, driven by both urban and rural markets, primarily in the refrigerator and air conditioner categories, while rural demand will become more prominent over the course of the second half of the exercise.

According to a CRISIL analysis report published on Wednesday, the industry will surpass the pre-pandemic volume level by 3% this fiscal year after surpassing it in value in the previous fiscal year.

Soaring raw material costs such as copper, aluminum, steel and polypropylene are putting pressure on margins, but not to the same level as last year, when they fell 180 to 200 points basic. However, the research did not specify how much margins would be affected.

Another factor contributing to margin compression is the falling rupiah; however, as 45-50% of raw materials are imported, this factor will also have a negative impact on profitability.

According to the report, however, industry profitability will decline slightly due to rising commodity prices and unfavorable currency movements based on an analysis of eight companies that account for half of industry revenue. However, due to their strong balance sheets, which translate into low leverage and a good level of liquidity, the credit profiles of the main companies remain favourable.

Shorter replacement cycles, increased trading, greater financial penetration and changing weather conditions are other catalysts that will increase volume by 10-13%. However, much depends on how dry the eastern market is and how the monsoons develop in the last weeks of the season.

The underserved air conditioner (AC) market will be the major growth driver. The demand for freezers and air conditioners is fueled by changing weather conditions. More and more consumers are choosing fully automatic washing machines and refrigerators with increased capacity.

According to the survey, compact air conditioners are preferred due to the smaller residences found in urban areas. Shorter replacement cycles, varied owners and a preference for larger screens are driving TV demand.

Due to high prices of important commodities, including copper, aluminum, steel and polypropylene, which could not be fully passed on to the end consumer, the operating margin is expected to decline moderately in this year after contracting considerably by 180 to 200 basis points last year. year.

Input prices are still higher than historical levels, although they have fallen from the peak of the past two months. Profitability is further affected by the depreciation of the rupee, as 45-50% of raw materials are imported.

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