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NEW DELHI: Factors such as commodity inflation, demand slowdown and higher interest rates may present near-term hurdles for the Indian consumer durables sector, but believes that the sector offers structural double-digit revenue growth of 10-12 per cent over the next decade.

Disruptions such as the government’s demonetization exercise in November 2016, the implementation of the Goods and Services Tax and successive waves of COVID-19 have only led to deferred demand for the sector, the foreign bank said in a note.

This has been followed by quick demand recovery and market share consolidation in favour of companies with the best product portfolios, the bank said.

“Each of these has only led to market share consolidation in favour of companies with the best product portfolios. We expect the trend to continue during the present wave of commodity inflation and company-specific issues.”

Within the current environment, BNP Paribas picks

, Orient and as companies that could outperform. For the first two, the foreign bank cites resilient business models and product portfolios, while Whirlpool is a non-consensus value pick.

For Havells, BNP Paribas sees a 14.4 per cent upside in share price, while that for Orient is seen at 26.2 per cent. For Whirlpool, the foreign bank predicts a 44.4 per cent rise in share price, while the upside for

Consumer is seen at 22.8 per cent. The foreign bank has a buy rating on all four stocks.

“Crompton needs to aggressively counter emerging competition in its key fans segment from Havells, Polycab and Orient, in our view.”

BNP Paribas sees a 2 per cent downside for Polycab and 8 per cent upside for Voltas. Polycab and

have been ascribed a hold rating by the foreign bank, given fair valuations in a challenging environment.

BNP Paribas Consumer Goods ComparisonsET CONTRIBUTORS

According to BNP Paribas, structural growth, resilience and market consolidation were at play and that stronger brands were looking to consolidate their market positioning with aggressive growth strategies.

“Many legacy/single-product brands have failed to capitalize on their strengths and have been caught off guard by competition. We see this trend continuing over the next decade… We find Havells, Polycab, Voltas, Orient and Whirlpool as the most credible challengers.”

BNP Paribas listed out a three-point investment framework for stock selection, saying that the three factors were necessary though not sufficient conditions for stock returns over the long term.

The three points include Total Addressable Market (TAM) analysis, the structural growth of the current product portfolio and reinvestment strategy, the foreign bank said.

A higher total addressable market boost opportunity over the medium to long term and Havells has the highest TAM of Rs 2 lakh crore, BNP Paribas said.

“…apart from just the highest TAM, it is the ability to increase the TAM which is more important. In this regard, most of the companies have been taking steps, some more aggressive than others.”

When it comes to the structural growth of the current product portfolio, Havells and Polycab present the best structural growth rate of 13 per cent over the medium term – FY22 to FY30, BNP Paribas said.

From the perspective of reinvestment, BNP Paribas said that it prefers companies that reinvest in bettering structural growth rates of products through product-portfolio expansion, brand visibility, own manufacturing, among others.

“Havells, Polycab and Whirlpool have been following an own- manufacturing strategy, while Orient is investing strongly in brand building,” the bank said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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