Given the macro backdrop, sector leaders should be favored; top choices are Whirlpool, Havells, KEI, and Dixon.
Our coverage universe for consumer durables outperformed our predictions on a top-line basis, beating them by 7.9% (ex-Dixon/Amber) over three years. As a result of high-cost inventory, a lack of pricing action, and higher ad expenditures throughout the quarter, profitability remained a challenge. Ebitda margins declined 180 bp below our forecast, albeit remaining flat year over year.
Our opinion is that when commodity costs begin to decline, margins will begin to progressively increase. Due to the early start of the holiday season and the lack of the necessity for further pricing action, demand would likewise follow suit, notwithstanding a quiet June/July. We continue to recommend Whirlpool, Havells, KEI, and Dixon as our top sector picks.