Consumer Durable Stocks: Unraveling Corrections in the Bull Run

Indian stock markets are touching new highs. There is one particular sector where stocks are touching new lows. Consumer durable stocks, namely Whirlpool Off India Ltd., Orient Electric Ltd., Symphony Ltd., and Crompton Greaves Ltd. The companies are fundamentally strong, with very strong products and a good market share in India. These companies have not always underperformed; looking at the historical data, these stocks have generated very high returns.

Whirlpool of India Ltd engages in the manufacture and marketing of home appliances. The company stock has given 1,600% returns in the period of 2013 to 2021.

Orient Electric Ltd. is engaged in the manufacture and sale of electronic equipment. The company stock has given 200% returns in the time of 2018 to 2021.

Symphony Ltd. operates as a holding company that manufactures and markets residential, commercial, and industrial air coolers. The company stock has given 1,300% returns in the period of 2013 to 2018.

Crompton Greaves Consumer Electricals Ltd. is a holding company that engages in the manufacture and distribution of consumer electrical products. The company stock has given 300% returns in the time span of 2016 to 2021.

Why have these consumer durable companies corrected so significantly while markets are touching new highs? 

Whirlpool of India 

Before COVID, the revenue growth was decent, but after COVID, the growth was not much higher. Looking at the margins, the double-digit number is now a single-digit number, which disappoints the profitability factor. The profits have fallen from 650 crore levels to 250 crore levels; this is the major reason for the decline in the share price.

The durable goods industry experienced heightened inflation in expenses, exacerbated by interest rate hikes that negatively impacted consumer sentiment throughout the year, resulting in a gradual decline in appliance demand amid escalating costs. The period leading up to the March 2023 season proved unexpectedly challenging for the industry due to unforeseen weather conditions.

Additionally, the consumer durables market witnessed intensified competition in the past 12–18 months, marked by a surge in new entrants aiming for rapid expansion, often driven by aggressive pricing strategies or disproportionately high investments in sales efforts. Lastly, substantial shifts in energy and regulatory norms for refrigerators necessitated the phased introduction and discontinuation of entire refrigerator ranges in the first half of the current calendar year.

Promotor holding is constant while FIIs and DIIs increased slightly and public holdings declined. Despite this, the high promoter stake adds confidence to this stock.

Orient Electric

Orient Electric also shows the same story in the context of financial performance, where margins decline and profitability also declines.

During the year under review, OEL posted revenue of Rs 529 crore, up 3.3%. YOY. EBIDTA declined by 34.7% while profit after tax (PAT) dropped by 39.8%, impacted by input inflation and ongoing investments in brand building and capability-development initiatives for long-term growth.

In recent con-calls, the company is expecting to retain double-digit margins within the next 2 or 3 quarters and not more than that.

FIIs have decreased stake, and DIIs have added stake.

Symphony

The company is struggling with margins, as all consumer durable stocks are reflecting. Profits are declining.

Even though prices for goods around the world were going down, inflation in India didn’t go down as expected. The company tried to fix it by raising prices, but it was too late. The company also faced unexpected problems in countries it had invested in, like Australia, where things turned bad quickly. As a result, the company didn’t do as well overall as it had hoped.

FIIs have decreased stakes, and DIIs have also sold some of the stakes where public shareholding has increased.

Crompton Greaves Consumer Electricals

The company’s revenue is increasing year over year, which is satisfactory, but the margins have been reduced from the last 3 years to 10%, and PBT has also been reduced and impacted profitability.

Other things seem similar to those of other companies.

Conclusion 

The decline in consumer durable stocks can be attributed to the surge in inflation, which adversely affected these companies on multiple fronts. Weak consumer demand significantly impacted their revenue, while elevated input costs exerted pressure on profitability. Consequently, consumer durable firms grappled with challenges on both the supply and demand sides.

Additionally, heightened competition from new entrants exacerbated the situation. Notably, these companies, historically regarded as premium, experienced a downturn in growth, rendering them overvalued in the current market scenario. Despite their enduring fundamental strength, the correction in their valuations became necessary.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.