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Consumer Durables Q4FY20 Result Review

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Consumer Durables Q4FY20 Result Review Consumer Durables Q4FY20 Result Review Praveen Sahay Research Analyst [email protected] June 2020 SECTORAL OVERVIEW 2 Consumer Durables Sector ● Revenue growth across the board was impacted as COVID-19 led lockdown impacted peak sales period. Our coverage space (Voltas and Amber Enterprises) outperformed the sector. ● Coverage companies reported Revenue/EBITDA/PAT growth of 4.5%/13.8%/6.9% y-o-y against the industry change of (-)1.8%/(-)3.5%/6.7% y-o-y, respectively. The outperformance was led by strong revenue growth of Amber & margin improvement in Voltas. ● Gross profit margin for the quarter improved 230bps y-o-y. Margin expansion was seen across all the companies led by better product mix & sharp drop in raw material prices. ● EBITDA margins was almost flat y-o-y despite the expansion in the gross margin as operating deleverage negatively impacted. Symphony, Dixon, Voltas reported expansion while BlueStar, Amber reported contraction. ● PAT for the quarter grew 6.7% y-o-y for the sector mainly led by robust growth reported by Symphony, Dixon & Voltas with operating margin expansion and lower tax outgo. The remaining three companies reported a fall in PAT with Blue Star reporting the highest fall. ● Superior performance by Dixon, Symphony & Voltas’ UCP segment & below par print of BlueStar were the key-highlights of the quarter. ● Outlook: The companies observed a strong growth in months of January & February but a washout in March, due to COVID-19. The inventory of seasonal products in the system is enough to meet the demand, which may come in rest of the season. The companies are expecting significate correction in yearly sales, looking at current situation, which shall change based on how the COVID-19 scenario pans out. Companies which have a strong presence in tier 3-4-5 markets, are comparatively better placed as those areas are relatively less impacted by COVID-19. Also, companies have floated aggressive promotional offers and expected to boost online channel. We remain cautious on FY21 as the lockdown has washed away most of the summer season – a major part of annual sales for industry. We remain long term positive on RAC segment and outsource manufacturing with ‘Vocal for Local’ campaign of GoI. Top BUY: Amber Enterprises and Voltas Ltd. 3 Impact of COVID-19 ● A large portion of the consumer durable sector covered in the report is dominated by air-conditioners & other cooling products. ● With Covid-19 led lockdown, striking the peak demand season starting since 15th March till the month of May; we expect the earnings to get impacted severely in FY21. March to June period accounts for ~60% of the sales. ● However, we also expect the companies to undertake massive cost cutting measures to cushion the blow of COVID-19 led lockdown. ● We expect the sales to recover faster in smaller towns & rural part of the country led by lower impact of COVID-19. Thus, the companies, like Voltas & Symphony, which have a strong presence in tier 3-4-5 markets, are comparatively better placed and should see a faster recovery in sales. ● The phenomenon of “China plus one” has gained traction and initial signs of efforts to reduce concentration risk in manufacturing is visible. ● We have downward revised our estimates to bake in the impact of COVID-19 on FY21 & FY22 financials. However, with the gradual improvement in demand through unlock and change in consumer behavior towards discretionary spends, we expect demand improvement in H2FY21. Q4FY20 Revenue Growth FY21E Change in estimates FY22E change in estimates Consumer Durable Jan & Feb Jan-Mar Revenue PAT Revenue PAT Voltas Ltd. NA 1% -8% 1% -6% -2% Amber Enterprises India Ltd. 22% 10% -15% -23% -7% -7% Blue Star Ltd. NA -19% -17% -45% -13% -21% Whirlpool of India Ltd. NA 0% -18% -25% -10% -15% Symphony Ltd. 11% 6% -14% -12% -10% -7% Dixon Technologies (India) Ltd. 20% 0% -12% -11% -8% -1% Note: Estimates of Voltas & Amber are of EPIR; Whirlpool & Symphony of Edelweiss Institution; BlueStar & Dixon consensus 4 Latest Trends Temperature in April Google Trends in India 50 120 120% 40 100% 30 100 80% 20 60% 10 80 40% 0 Mumbai Delhi Chennai Bangalore Hyderabad Kolkata 60 20% 0% Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 40 -20% -40% 20 Temperature in May -60% 40 0 -80% 30 20 10 27-02-2019 27-03-2019 27-04-2019 27-05-2019 27-06-2019 27-07-2019 27-08-2019 27-09-2019 27-10-2019 27-11-2019 27-12-2019 27-01-2020 27-02-2020 27-03-2020 27-04-2020 27-05-2020 27-01-2019 0 Air conditioner % Change YoY Mumbai Delhi Chennai Bangalore Hyderabad Kolkata May-16 May-17 May-18 May-19 May-20 Google Trends show a sharp drop in the Average & Median temperature increase by month of April, whereas a sharp surge in (0.5-1)°C for the AMJ months of 2020 as the month of May & again a fall in the compared to AMJ months of 2019 as per first 2 weeks of June. IMD. 5 Latest Trends: Takeaways from Pine Labs report Transaction count & amount (Ex Delhi & Mumbai) in Tier-I cities reached up to pre- COVID-19 levels led by sales of higher ticket items like AC & also pent-up demand. Continuity of the trend shall be a key monitorable Home & Kitchen Appliances transactions in the Tier-II cities have picked-up to the pre-COVID 19 levels. However, one needs to monitor the data to determine the nature of demand. 6 Latest Trends: Aggressive Promotions to boost sales 7 Latest Trends: China Plus One can be the next big trigger Import of AC & AC components Export of AC & AC component 9000 8344 120% 1400 100% 8000 103% 7496 7420 100% 1200 80% 7000 6387 80% 1000 6000 5372 5354 60% 5074 4969 800 5000 60% 4038 40% 3896 600 4000 40% 20% 3000 30% 400 1985 19% 17% 20% 0% 2000 8% 11% 200 0% 1000 -4% -2% 0% -11% 0 -20% 0 -20% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 AC & parts export Value (INR cr) % growth (YoY) AC & parts import Value (INR cr) % growth (YoY) ● Import of AC & AC components decreased in FY20 after being on a rising trend for last several years. ● Export of AC & AC components however continued its rising trend. ● Interaction with the management team of Amber, suggested thatS there are initial signs of China plus one trend emerging ● Leading brands have also expressed their intent to reduce the dependency on imports & to increase outsourcing as well ● Amber has received interest from US based firms and have also delivered on a small order of AC components 8 Consumer Durables: Growth Revenue Growth Consumer Durables Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Voltas 5% 7% 16% 1% 10% 37% 9% 1% 24% 0% 0% 1% Revenue Growth Amber 12% 13% 24% 53% 73% 75% 89% 52% 10% was impacted due Blue Star 23% -5% 2% -4% -3% 18% 18% 19% 6% 14% 7% -19% to COVID-19, Whirlpool 15% 37% 18% 24% 13% 2% 26% 8% 20% 18% 5% 0% BlueStar underperform the Symphony 25% 41% 22% -2% -23% 5% 10% 33% 100% 22% 21% 6% sector Dixon 58% 17% -1% -4% -15% -16% 17% 44% 94% 90% 25% 0% PAT Growth Consumer Durables Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Voltas 18% 22% 23% -3% 0% 12% -22% -27% -11% 0% 13% 13% Despite lower Amber 47% 3% -209% NA 98% 143% 577% 524% -6% revenues, most of the companies Blue Star 16% 18% 169% -21% 40% -28% -178% 62% -13% -11% 95% -20% reported increase Whirlpool 9% 25% -4% 23% 23% 7% 14% 14% 17% 59% 21% -11% in profits led by Symphony 23% 18% 18% -14% -49% -30% -43% -41% 65% 66% 38% 91% cost-saving Dixon 15% 33% 23% -39% 18% -21% 16% 17% 85% 162% 49% 67% actions and lower tax outgo 9 Consumer Durables: Margins Gross Margin Consumer Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Durables Voltas 29% 36% 31% 27% 28% 32% 30% 27% 27% 28% 27% 23% 25% 28% 29% 29% Gross Margins Amber 16% 15% 18% 16% 17% 16% 17% 14% 16% 16% 18% 17% 17% improved across the companies as Blue Star 28% 30% 31% 28% 26% 35% 28% 26% 26% 25% 24% 24% 25% 25% 24% 25% RM prices Whirlpool 38% 44% 43% 42% 36% 39% 41% 36% 38% 38% 37% 38% 38% 42% 40% 38% primarily Copper Symphony 58% 52% 54% 50% 48% 51% 55% 53% 49% 48% 46% 43% 46% 47% 48% 48% reduced Dixon 14% 11% 13% 14% 13% 11% 13% 14% 13% 13% 12% 12% 11% 10% 13% 16% EBITDA Margin Consumer Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Durables Voltas 11% 7% 8% 11% 11% 8% 8% 12% 11% 8% 8% 7% 11% 7% 7% 9% Operating Amber 9% 9% 8% 7% 10% 8% 4% 6% 9% 9% 6% 7% 8% deleverage played out across Blue Star 7% 4% 3% 5% 7% 6% 4% 4% 9% 5% 0% 6% 7% 4% 3% 3% the companies Whirlpool 15% 11% 10% 12% 14% 10% 9% 11% 15% 9% 8% 13% 15% 10% 7% 10% leading to fall in Symphony 26% 34% 37% 27% 15% 30% 36% 28% 12% 19% 18% 12% 13% 23% 23% 17% EBITDA Margin Dixon 4% 4% 4% 3% 3% 4% 4% 5% 4% 4% 5% 4% 5% 4% 5% 7% 10 Segmental Performance UCP Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Segment Revenues (INR cr) 2509 1205 1375 2417 2876 1265 1515 2469 3600 1355 1611 2502 Gross Margins improved across Segment Growth (%) 20% 51% 51% 26% 15% 5% 10% 2% 25% 7% 6% 1% the companies as Segment EBIT (INR cr) 269 133 152 324 305 70 87 197 339 104 121 199 RM prices primarily Copper Segment EBIT Margin (%) 11% 11% 11% 13% 11% 6% 6% 8% 9% 8% 7% 8% reduced UCP Revenue Growth % Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Voltas 1% 15% 32% -2% -2% 8% -3% -6% 47% 19% 14% 20% Voltas continued Blue Star 13% 8% 1% -9% -1% 9% 22% 19% 9% 10% 7% -15% its stellar Symphony 25% 41% 22% -2% -23% 5% 10% 33% 100% 22% 21% 6% performance
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