MOSL: Morning India (25/April/17)-1. Room Air Conditioners (Focus shifts to inverters)-2. Reliance Industries (EBITDA exceeds estimates); 3. UltraTech; 4. Indiabulls Hsg.; 5. Hexaware Tech.
​MOrning India (25/April/17): 1. Room Air Conditioners (Focus shifts to inverters); 2. Reliance Industries (EBITDA exceeds estimates); 3. UltraTech; 4. Indiabulls Hsg.; 5. Hexaware Tech.
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Today’s top research theme
Room Air Conditioners: Focus shifts to inverters
- ​We estimate inverter ACs to account for 30% of industry volumes in FY18 and 50% in FY20, driven by: a) convergence of inverter and fixed-speed AC ratings from Jan-18 and b) LG’s aggressive pricing in inverters.
- We prefer Blue Star (initiating with Neutral; TP: INR680) over Voltas (downgrading to Sell; TP: INR370).
- Japanese brands (e.g. Daikin, Mitsubishi, Sharp and Hitachi) have dominated the Indian inverter AC market. Market leader Voltas’ share and margins are under threat from players like Daikin, Blue Star, Lloyd Electric and Panasonic. We see increasing risks from: a) industry convergence to inverters where Voltas has a weak share (~5-7% of sales from inverter ACs) and b) inventory destocking prior to potential GST implementation in July-17 and the new ratings system for ACs. Stock price run-up over past two months factors in higher expected sales due to hot summers while ignoring aforementioned risks.
Piping hot news
RIL, BP to buy out Niko stake in KG-D6
- Niko Resources of Canada is in the process of selling its 10 per cent participating interest in Reliance Industries Ltd (RIL)'s gas discovery in block NEC-25 off Odisha coast to RIL and BP plc. “NEC25—DOC was reviewed by Management committee for Discovery D32.
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