The consumer durables sector is projected to witness a revenue growth of 8-10 per cent this fiscal on the back of a steady growth in urban demand and strengthening premiumisation trends, according to a report released by CRISIL Ratings. The industry had seen revenue growth of about 18 per cent during last fiscal, supported by healthy volume-led growth in post-pandemic times.

This report is based on an analysis of eight companies in the consumer durables space that account for around half of the market in value terms.

The softening of raw material prices after two years will also enable an improvement in operating profitability. However, the ratings agency noted that this will remain “below the pre-pandemic level, amid intense competition”. Average input prices of key commodities such as copper, aluminium and steel are projected to be lower by 12-15 per cent this fiscal from the highs of fiscal 2022.

The credit profiles of the companies are also expected to remain stable, backed by strong balance sheets, despite some capital expenditure (capex) under the production-linked incentive (PLI) scheme, it added.

Mohit Makhija, Senior Director, CRISIL Ratings, said, “Demand for premium appliances is expected to gain traction this fiscal. This is expected to lead to rising demand for appliances with smart technologies that integrate seamlessly with other home appliances, as well as consumers uptrading to higher capacity/sizes at limited incremental cost. At the same time, consumers are also expected to opt for efficient appliances that lower the operating costs. Appliances such as air conditioners and television (TV) sets will benefit more due to this trend.” Large-screen TVs with smart features and inverter technology-based air conditioners that are more energy-efficient are, for instance, witnessing higher demand.

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Real-estate push

“Demand will also be fuelled by a near 67 per cent growth in residential real estate area sold in the top six cities over the past two years. Improved residential real estate sales typically trigger demand for appliances after a lag, which is likely to play out this fiscal,” the report noted.

However, the report noted that demand for non-premium or basic appliances will remain “modest.” Demand for such products, typically driven by rural or semi-urban areas, will be affected by high inflation and the impact of erratic monsoon on income levels.

Anand Kulkarni, Director, CRISIL Ratings, said, “Operating profitability may recover by up to 100 basis points this fiscal, after the steep drop in the past two fiscals, due to rising input prices. The competitive environment, which forced players to take lower-than-warranted price hikes, had also contributed to the contraction in profitability. Considering the continued competitive pressure, recovery to the pre-pandemic profitability is still distant.”