In another interview, the management of BlueStar, a leading AC brand, sounds quite confident, projecting a 19% CAGR (compound annual growth rate) in ACs.
These interviews have come along with the news of the India Meteorological Department issuing the heatwave warning for Gujarat.
You see, in 2024, during a record-breaking heatwave, the AC sales shot through the roof.
While sales were booming across regions, it was the tier II and tier III cities that surprised even the leading brands and the entire supply chain. Demand outstripped supply, and stores were out of stock.
While AC supply-chain players literally made hay with the sun shining, they want to be even better prepared now.
And there is more to it than just heatwaves.
Amid uncertain times, the one thing that looks structurally strong is the rise of the aspirational middle class in India.
Indeed, ACs and other consumer durables and electronic goods are not a luxury anymore. They have found new markets in tier III and even tier V towns. Factors like under-penetration, urbanization, affordable electronics, and access to power connectivity have led to the rise in consumer durables.
Consumer financing, e-commerce, modern retail brands are embracing whatever it takes to meet the demand that seems to have exploded.
And then it’s not just brands like BlueStar, Voltas, Haier, Daikin and others.
Some other companies that have benefitted from the rise of sales of electronic goods and consumer durables include Aditya Vision Ltd—a market-leading electronic chain in Bihar that is further capturing the market in states like Uttar Pradesh.
Similarly, Electronics Mart India Ltd is a market leader in southern states, especially dominant in Telangana and Andhra Pradesh.
And how can you miss the contract manufacturers—PG Electroplast, Amber, ePack Durables, etc.? Amber, PG, and EPACK command over 90% of RAC (room AC) industry ODM (original design manufacturer) requirements.
However, to capitalize on this boom, the supply chain needs to be localized. Already, the shortage of compressors and other components is expected to lag demand. With BIS standards, Chinese imports are not as cheap anymore. Self-sufficiency is needed for the rise of consumer durables in India.
While many players realise this now, some have been faster than others.
Take for instance Styrenix Performance Materials.
The company is a market leader in ABS and SAN business in India, a niche manufacturer of a product that was primarily imported.
These are engineering thermoplastics used across industries like automobiles, electrical and electronic products, household consumer durables, construction, healthcare products, stationery, cosmetics, packaging, toys, and extrusion segments.
It was recently in news for acquiring Ineos Styrolution Thailand Co. Ltd. This is with an aim to avail synergy benefits of technology, capacities, products and geographical markets, and for import substitution in India.
Some of the similar companies in engineering plastics that are worth keeping an eye on include Supreme Petrochem and Bhansali Engineering Polymers.
While there is always an element of commodity risk in these players, these market leaders are focused on value addition. Along with strong balance sheets, they enjoy healthy return ratios.
And if the manufacturing theme, especially the rise in consumer durables and discretionary consumption interests you, these could be some interesting candidates for your watchlist amid market correction.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
