Stocks of consumer electrical product companies such as Bajaj Electricals, Crompton Greaves Consumer Electricals, Havells India and V-Guard Industries have been on a roll for quite some time.

While Havells hit an all-time high on October 23, other three stocks touched their new all-time high levels on Friday. These four stocks have gained in the range of 55-113 per cent in the last one year.

According to experts, while companies have not disappointed despite challenges post demonetisation and implementation of GST over the past one year, recent reduction in the GST rates (applicable to key products of these companies) to 18 per cent from 28 per cent has added fuel to the rally.

“While products such as heaters, fans and geysers have been growing reasonably fast, air conditioners and televisions are the fastest growing categories,” said Prateek Agarwal, Business Head & CIO of ASK Investment Managers.

The GST council in its November 10 meeting reduced tax rates for 174 items out of 224, including fans, insulated cables, wires, switches, circuit breakers, traditional bulbs and light fittings to 18 per cent from 28 per cent tax bracket.

Havells to reap much

“In the appliances space, Havells is expected to be the biggest beneficiary, as 60 per cent of its revenues will be positively impacted by GST rate revision. Premium fans contribute 99 per cent to total revenues from the fans segment, which will drive margins.

“Crompton derives 46 per cent of its revenues from fans, of which premium fans contribute 18 per cent to the total fans business, V-Guard’s 42 per cent of revenues will benefit from this revision,” pointed out HDFC Securities Institutional Research in a post event note.

Analysts are bullish on Bajaj Electricals not only due to stabilisation of the distribution model of the consumer durable division by end-FY18 but also a healthy order book in its E&P division. Implementation of GST will additionally benefit the company.

Expensive valuation

The four companies now trade at expensive valuations of 24-40 times FY19 estimated earnings — similar to fast-moving consumer goods and other consumer categories.

“I am okay with the companies’ valuation as many of them are leaders, have good businesses, which will continue to grow at a good rate. More the underpenetrated category such as ACs, higher will be the valuation,” said the head of research of a stock broking firm.

Elara Capital mentioned that Havells is the market leader in premium fans with 25 per cent share, followed by Crompton’s 15 per cent.

Additionally, half of the wires segment is unorganised, and hence, rate reduction will lead to a shift to the organised market benefiting the company.

In short, analysts’ comments suggest that existing investors in the companies should not hurry to offload these shares, while new investors could accumulate with a longer term vision.

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