With the rollout of Goods and Service Tax (GST), the organised players in any industry are well positioned to emerge stronger and weaken the competition posed by unorganised small and medium players. The consumer electricals industry is no exception.
Switches, bulbs, tube lights, fixtures, iron box, home appliances have all been dominated by localised small and medium-sized companies whose competitiveness is eroded due to GST. It is estimated that about 30-40% of consumer electricals sector is accounted for by small firms.
The organised players will be able to offset input costs against GST on the final product, and hence, pass on these benefit to the consumers. Here is a look at the major players in this segment.
Bajaj Electricals Ltd (BSE: 500031, NSE: BAJAJELEC) Category: Mid Cap
Bajaj Electricals is a premier player in the consumer electrical appliances business and a well known name in households from late 1930s. It produces a wide range of fans, iron boxes, mixer grinders, kitchen appliances, lighting products, water heaters, room coolers etc.
The company had advanced Rs 3.8 cr to Starlite Lighting with shares as collateral and could exercise a right to acquire those shares at its sole discretion.
The company has announced its intention to move into Internet of Things (IoT) that helps connect devices to internet helping them interact with each other providing better control for consumers. It is also involved in the smart city project to provide outdoor lighting solutions has a tie up with CISCO and Gooee of UK.
In March quarter net profit rose 10.75% on annualised basis to Rs 3.79 cr. Sales fell 6.79% to Rs 1,259.44 cr. Earnings per share (EPS) rose 10.17% to 3.79. On a returns perspective, it fares poorly on monthly and quarterly perspective but impressive on a half-yearly basis at 48.66.
It gives a return on equity of 12.71% and on capital employed at 24.40 on par and higher with industry average. Liquidity and cash flow ratios are negative. Promoters hold 63.40% stakes.
On technical charts, Relative Strength Index (RSI) of 54.10 denotes neutral to bullish trend while ADX of 21 denotes range bound trading and MACD line has witnessed a crossover and therefore likely to witnessed an uptrend.
Currently trading near to 50-day moving average (DMA) of 341. Support is seen at 323, 321 levels.
Target: 400 Duration: 6 weeks Strategy: Hold/Buy
Havells India Ltd (BSE: 517354, NSE: HAVELLS) Category: Large Cap
Havells India Ltd is a dominant player in the Fast Moving Electrical Goods (FMEG) industry with presence in 40 countries, 12 manufacturing plants and 20,000 strong distributor network. Its product range consists of fans, switches, water heater, air coolers, pumps, lighting, domestic appliances.
It acquired Lloyds consumer business division at a cost of Rs 1600 cr on debt free, cash free basis. It has reported strong growth in electrical consumer durables (22%), Switch gears (11%) but a lower rate of 6% in lighting and fixtures in 2016-17. Net profit for the year fell to Rs 539 cr as against Rs 712 cr the previous year.
The March quarter financial results were a bit disappointing due to demonetisation and increase in raw material costs. Net profits fell 74.11% to Rs 94.70 cr while sales rose 17.16% to Rs 1710.20 cr. EPS fell sharply to Rs 1.52 cr.
On a returns perspective, Havells has been trailing behind on monthly, quarterly and half-yearly basis compared to industry average. But fares well on financial ratios- return on equity of 15.09%, assets of 9.87% and net profit margin of 8.03%. Liquidty and cash ratios present a mixed picture with weaker current and quick ratio but better on cash and debt equity ratio. Promoters hold 61% stake.
On technical charts, RSI of 54 indicates neutral to bullish trend while ADX of 27 denotes range bound trading while MACD line has witnessed a bullish crossover. Trading near to 50 DMA of 481.50, long term support is seen at 444.
Target: 520 Duration -6 weeks Strategy: Hold
Crompton Greaves Consumer Electricals Ltd (BSE: 539876, NSE:CROMPTON) Category: Large Cap
Crompton Greaves is a leading player in the consumer electrical industry with quality products such as fans, lighting, air purifiers, pumps, appliances. It has tied up with UK-based Gooee to launch internet of things (IoT) connecting the company with its customers. This alliance is expected to help consumers, the company and vendors to improve their efficiencies. It is also in the forefront in introducing new products such as anti-dust ceiling fans that attracts 50% less dust. It uses nano-technology based paints-the texture has hydrophobic and oleophobic properties.
The company reported a net profit growth of 29.77% in March quarter at Rs 86.44 cr, EPS of 30.19%, while sales rose 7.44% to Rs 1,076.15 cr. On a quarterly perspective, 3.21% and 44% half yearly basis is impressive compared to peers.
Return on equity of 53.91%, impressive net, gross profit margins make the scrip attractive while cash and liquidity ratios are in the red. Foreign promoters hold 34.38% stake.
RSI of 50.65 is neutral for the stock while MACD line has witnessed a bullish crossover signalling further uptrend. ADX of 14.94 is indicative of tight range bound trade. Support is seen at 219 levels while resistance is seen at 240 levels.
Target: 250 Duration -5 weeks Strategy: Hold
The consumer electrical industry is going through a transition phase embracing new technologies and innovating with new products and solutions. The emergence of Internet of Things (IOT), LED lighting, energy efficient and use of newer materials.
The major players in the industry such as Bajaj, Havells, Crompton Greaves are all taking the lead in innovating with new products and solutions. Crompton Greaves and Bajaj have innovated in IoT that helps devices communicate with us through internet.
Organised players have an edge as they can offset input taxes against the final tax payable and therefore the competitiveness enjoyed by small industries.
India’s consumer electricals industry is poised to emerge stronger in the coming years thanks to more disposable incomes, formation of more nuclear families, more housing investments and availability of innovative products.
The consumer electrical market is expected to grow from Rs 88,900 cr in FY 2016 to Rs 1.3 lakh crore by 2020. Hence it is ideal to have some exposure to electrical industry by monitoring the financial performance in the coming quarters and technical indicators.