Destocking led by GST may hurt AC sales for Voltas, Blue Star
Consumer electronics - air condition manufacturer companies may witness lower sales in the first quarter of FY18. The lower sales margins is anticipated by analysts on destocking by dealers and higher tax rates.
Key Highlights
- GST to impact margins of Air Conditioner sales from Blue Star and Voltas.
- Destocking by dealers reluctant to hold AC inventory may also hit Q1FY18 sales.
- Prices of ACs post GST are anticipated to rise nearly 2-5% on higher tax rates.
Air Conditioner manufacturers like Voltas and Blue Star may feel a drop in sales post the implementation of the Goods and Service Tax (GST) on July 1 not only because of the rate of tax imposed but also because of destocking by dealers.
“Volumes in 1H18 are likely to see downward pressure due to a) destocking by dealers followed by a lean sales period, which may restrict restocking and b) high growth base of 1H17, where UCP segment sales grew by 23% YoY,” Sandeep Tulsiyan, of JM Financial said on June 20.
The transition to GST is expected to hit primary sales as even analysts from Motilal Oswal cited in a report on Monday.
“Growth in the room air conditioning (AC) segment is expected to be flat YoY in 1QFY18 as dealers avoid fresh buying and resort to destocking/inventory clearance due to the likely implementation of GST in July 2017,” Ankur Sharma and Amit Shah said.
Live Mint said on Monday.
Analysts estimate that the month of July will witness muted demand due to the onset of monsoon, destocking by dealers and GST on ACs which is expected to revise prises upwards 2-5%.
However the analysts have said that a revival is likely during the festive season later this year.
Margins of Voltas ACs would remain stable, the analysts said. “The company expects margins to stabilize at 11-12% over the long term, as against 14.5% in FY17. Rationalization of margins would be driven by a) high competitive intensity in the industry and b) focus on maintaining market share with an 11-12% margin profile,” Motilal Oswal report said.
“Voltas took price cut on select products to counter price competition, but higher RM inventory from 1H17 and appreciating INR helped mitigate cost pressures to some extent,” JM Financials report said.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.