PL Capital cautious on seasonal product firms, sees Blue Star well placed

Praveen Sahay, Research Analyst at PL Capital, said high inventory levels and upcoming regulatory changes could weigh on seasonal product companies in the coming quarters. “I will be cautious on all the seasonal product companies, because the major challenge is the liquidation of their inventory in the system,” he said.Sahay noted that the Bureau of Energy Efficiency (BEE) norm change is approaching, prompting brands, retailers, and contract manufacturers to clear stock. “Overall, inventory level has been doubled… a lot of promotional activity needs to be done by the brands, which will hamper the margin,” he explained. Retailers are also offering promotions to liquidate inventory built up in anticipation of strong summer demand.

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In the cooling products segment, including room air conditioners (RAC) and fans, Blue Star performed better than peers despite an industry decline of 15–30% in the last quarter. Blue Star’s decline was around 13%, and its margin contraction was lower than the industry’s 500 basis point drop. “They had maintained their numbers… Blue Star is well placed in that scenario, given the good numbers,” Sahay said.
In the electrical consumer durables (ECD) portfolio, Crompton Greaves Consumer also fared relatively better, with sales down about 8% versus an industry decline of around 10%, and with lower margin compression.Also Read | PG Electroplast says weak summer won’t derail revised guidance, rules out share buyback

Sahay added that RAC remains one of the lowest-penetrated categories in India and that one weak season should not determine the sector’s long-term outlook. “The only worry for me right now is the margin profile for the companies, because they are within a higher inventory, and the liquidation is one of the challenges,” he said.

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