homemarket Newsstocks NewsConsumer durables' near term appears hazy, says Edelweiss; earnings recovery not anytime soon

Consumer durables' near-term appears hazy, says Edelweiss; earnings recovery not anytime soon

Consumer durables' near-term appears hazy, says Edelweiss; earnings recovery not anytime soon
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By Mousumi Paul  Jul 3, 2020 4:15:08 PM IST (Published)

According to the Edelweiss report, demand has recovered well in June after a lacklustre May and a near wipeout in April.

The nationwide lockdown imposed due to the coronavirus has negatively impacted all the businesses. However, the reopening of economy in a phased manner is bringing back the recovery trend.

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According to the Edelweiss report, demand has recovered well in June after a lacklustre May and a near wipeout in April. Demand revival can be seen in tier 2-3 cities as inventories are normalising and brands are prioritising profitability and not resorting to heavy discounts, indicated the brokerage as key positives for the consumer durables sector.
Like a coin has two sides, so does this report. The brokerage also highlighted the headwinds that lay ahead for the sector, like fall in consumer financing by NBFCs, down-trading by consumers, margin pressure and tepid demand environment.
Why this Sudden Surge in Demand?
After the lockdown, the sales of small kitchen appliances, LED panels, laptops/computer and few other work-from-home essentials saw a pent-up demand given the necessity of the hour. As a result, secondary sales picked up in June.
Meanwhile, air conditioners faced losses this year during its peak season. However, the heat wave in North India helped to clear some excess inventory, but an early monsoon in South India again capped the overall demand revival to 60-70 percent, the report added.
Therefore, primary sales will take some time to recover but secondary sales will see a demand recovery.
Headwinds Ahead
Consumer financing by large NBFCs dwindled as the financial firms are focusing on credit quality and liquidity rather than growth, noted Edelweiss. It further said this will impact the near-term of the consumer durable companies but a pick-up in credit card sales should ease the situation.
It also said the brands are now busy in protecting margins through limited discounts for now.
Near-Term Earnings Risky 
The consumer durable companies have a large exposure to urban cities which widens the risk. Earnings will remain under-pressure given weaker growth outlook. Therefore, the near-term looks hazy, but remain bullish on three stocks from this sector namely Voltas, Crompton Greaves and Amber Enterprises, the report added.
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