Top Stock Picks: ICICI Securities Recommends These Consumer Durable Stocks To Watch Now

ICICI Securities, a domestic brokerage firm, has set its sights on the white goods and durables industry, with Havells and Crompton as its top picks.

As per the brokerage "With steep inflationary pressures, durable companies will have to choose between protecting margins vs maintaining volumes/ market shares. We expect these companies to protect volumes as it is more DCF accretive than losing margins in short term. Limited change in margins in spite of volatile raw material prices in past decade indicate that any impact on margins is generally short lived. We model margins to recover once the transitory impact of steep inflation is largely over."

"Prices of key raw materials such as copper, steel, aluminum and HDPE are up 19.5-62.7% YoY. We note most durable companies have raised prices by ~15% in past 12-15 months. Hence, we believe pricing power is capped in the near term. We believe steep inflation in input prices will likely affect profitability of durable companies in FY23," according to brokerage.

"We also believe the absolute impact on earnings should be minimal due to strong revenue growth (largely led by price hikes). With likely revenue growth of 15-20%, absolute EBITDA will decline only if margins contract by 150bps or more. In our view, larger players will continue to gain market shares from smaller players as the latter are hit harder by inflation. We remain constructive on the white goods and durables sector. Top picks: Havells and Crompton," the brokerage has claimed.

ICICI Securities has said "Considering the strong return ratios, healthy growth potential and low penetration levels, we remain positive on the white goods and durables sector. We also expect migration from unorganised to organised sector to steadily generate value. Havells India and Crompton Greaves are our top picks. Key risks: Higher-than-expected rise in input prices and irrational competition."

"We maintain our ratings for most covered companies, except Polycab and Whirlpool. We downgrade Polycab to HOLD, due to its high exposure to wires and cables business, which is likely to be more impacted in the inflation phase. We upgrade Whirlpool to BUY as we believe the company is likely to report strong earnings growth in FY23 as the transitory issues are largely over," highlighted the brokerage.

Consumer Durable Stocks To Watch Now

For the above stocks, the key upside risk remains better-than-expected gross margins due to correction in input prices and key downside risks remain unexpected irrational competition due to deceleration in general consumption demand, as well as steep inflation in input prices, as per the brokerage.