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MOSL: CONSUMER ELECTRICALS-Healthy primary sales for ACs; Electricals still subdued

CONSUMER ELECTRICALS: Healthy primary sales for ACs

** Channel filling aiding primary sales for ACs: Our channel checks suggest strong channel refilling for the air conditioner (AC) category. Due to strong secondary sales last summer, inventory level had dipped below normal for dealers and companies. From secondary sales perspective, 3Q is traditionally a lean season; dealers generally start refilling from December-end as they then avail better discounts from companies. We note that primary sales were weak in 3QFY19 owing to higher inventory in the channel. Hence, a favorable base and inventory normalization should drive growth for various companies in the AC category.

** No sign of price hikes yet for ACs: Feedback from the channel indicates that companies have not yet hiked prices due to 3Q being a lean season and on high competitive intensity. While input cost pressures (higher import duty and INR depreciation) have been high for some time now, players continue to target market share gains. Further, the US-China trade war has led to high inventory levels in China. Thus, players importing from China have benefitted. For instance, following the high inventory build-up in China, Voltas was able to avail high discounts, which more than offset the import duty increase.

** Inventory levels to normalize for ACs in Jan’20; but broader consumer electrical space struggling: While channel inventory for ACs has already returned to ~40 days in Jan’20, it is higher for electrical goods at 50-55 days. This is partly due to the slowdown in construction activity, which has resulted in weak sales.

** Water heaters see strong traction: Seasonal products like water heaters have done well, with high double-digit growth estimated for various players like Havells and Crompton. This can be attributed to the severe winter in North India, which is a major market for both players.