How to Analyse Consumer Durable Companies and Identify Investment Opportunities

Umesh Tripathi: 
Hello everyone, I am Umesh Tripathi and we are learning the concepts of fundamental analysis. In this video, we are going to learn how to analyse investable companies in the consumer durables sector. We will understand what the consumer durables sector is, look at examples of leading companies, understand the Indian consumer durables market and segment shares, and then see how to analyse companies in this space for investment decision-making. 

What is the Consumer Durables Sector? 

Consumer durables companies make products that are used for at least three years or more. These are goods that do not wear out quickly and provide utility over time. 

For example, when we use a washing machine, it is a product from a consumer durables company, and we typically use it for several years. 

Other examples include: 

• Air conditioners 

• Televisions 

• Refrigerators 

• Kitchen appliances 

• Other long-lasting home and electrical appliances 

Consumer durable products are goods that do not deteriorate quickly and offer value over a longer period, usually three years or more. 

Key Characteristics of the Consumer Durables Segment 

As the name suggests, the sector is strongly consumer driven and depends on: 

• Disposable income – higher income supports higher demand 

• Seasonality – for example, air conditioner sales peak during the summer; festive seasons also bring strong demand through offers and promotions 

• Urban and rural demand – both city and village consumption are important growth drivers 

• Interest rates and inflation – changes in interest rates and prices affect product affordability and demand 

When interest rates or inflation change, prices of these products may rise or fall, which in turn impacts demand and supply for consumer durables. 

Leading Companies in the Consumer Durables Segment 

Some key companies in this space include: 

Voltas a Tata Group company, focused mainly on-air conditioners and cooling solutions 

Whirlpool manufactures refrigerators and washing machines, known as a strong home appliance brand 

Havells / Lloyd – manufactures fans, switches and other appliances; Lloyd is known for ACs and consumer appliances 

Blue Star manufactures commercial and residential air conditioners, well known for B2B business 

Symphony manufactures air coolers and is a market leader in that segment 

Dixon Technologies a contract manufacturer and OEM partner for many other brands 

Bajaj Electricals manufactures appliances, fans and lighting solutions and is part of the Bajaj Group 

Product Categories in Consumer Durables 

So far we have seen that most of these companies manufacture appliances and electronics that are used either directly by consumers or by businesses. Broadly, the product categories are: 

• White goods – larger household appliances such as refrigerators, air conditioners and washing machines. These are mainly kitchen and laundry appliances. 

• Brown goods – smaller electrical appliances and entertainment devices such as televisions, music systems and microwaves. They are generally smaller than white goods and often linked to entertainment or communication. 

• Small appliances – products like irons, mixers and vacuum cleaners. 

• Consumer electronics – smartphones, laptops and similar devices. 

All these categories together form the consumer durables segment. When we analyse companies, we also need to understand which categories they operate in and how demand behaves in those categories, including whether demand is cyclical or stable. 

Indian Consumer Durables Market Overview 

If we look at the Indian consumer durables market, the total market size in 2024 is around USD 100 billion. The overall expected growth rate is about 10 percent CAGR between 2025 and 2030. 

Within this market, the segment shares are approximately: 

• Air conditioners: 12% 

• Refrigerators: 18% 

• Washing machines: 14% 

• Televisions and entertainment: 30% 

• Small and other appliances: 26% 

For example, Voltas leads the air conditioner segment with around 22 to 25 percent market share. 

Growth Drivers for the Consumer Durables Sector 

Key growth drivers include: 

• Rising household disposable incomes 

• Urbanisation and lifestyle upgrades 

• Better power and internet penetration 

• Festive and seasonal buying trends 

• Government push through PLI schemes and Make in India 

Under the PLI scheme for white goods, about ₹6,000 crore of investments have been announced. At the company level, we also need to study planned investments. For example, a company like Dixon Technologies is expanding through global OEM partnerships. Understanding such plans helps us judge future growth potential. 

How to Analyse Consumer Durables Companies 

There are a few important key metrics and factors that we need to consider when analysing investable companies in the consumer durables segment. 

1. Revenue Growth and Operating Margins 

• We first look at revenue growth over the last few years. Has the company been growing year on year? 

• A healthy benchmark for revenue growth is at least 10 percent per annum. 

• We also look at operating (EBITDA) margins. These should ideally be stable or improving over time. For many consumer durables companies, EBITDA margins usually range between 10 and 18 percent, depending on the product mix and positioning. 

2. Return Ratios – ROE and ROCE 

• Return on Equity (ROE) and Return on Capital Employed (ROCE) should ideally be 15 percent or higher. 

• For example, a company like Crompton Greaves Consumer might have ROCE close to 20 percent, which indicates strong capital efficiency. 

3. Inventory Turnover and Efficiency 

• Inventory turnover is another important metric. A higher inventory turnover is better, because it shows the company can clear inventory within a reasonable period. A benchmark of around 4 times or more is often considered healthy. 

4. Brand Value and Distribution Network 

Brand and distribution strength matter a lot in consumer durables: 

• How strong and trusted is the brand in the eyes of consumers? 

• What is the distribution network like? 

• Is the company present only in metros, or does it also cover Tier 2, Tier 3 cities and rural markets? 

Companies with wider and deeper distribution networks, and strong brand recall, are generally better placed to sustain growth and profitability. 

5. Capital Expenditure and R&D Investments 

• Capital expenditure (capex) and R&D investments reflect the company’s innovation potential and future readiness. 

• We need to understand what the company is planning. 

• What projects are there in the pipeline? 

• How much focus is there on R&D, new technologies and product innovation? 

• Is the company adapting to new technologies such as energy efficient appliances or smart, connected devices? 

These factors help us judge whether the company can stay relevant over the long term. 

External Factors and Risks 

There are also external factors and risks that influence consumer durables companies: 

Demand drivers: 

• Urbanisation 

• Rural electrification 

• Rising disposable incomes 

• Government schemes such as PLI and production-linked incentives 

These can support long term demand and growth. 

Key risks: 

• High raw material costs: for example, when prices of copper, aluminium or steel rise, the cost burden on consumer durables companies increases. 

• Component dependence on specific geographies: for instance, high dependence on China for components can be a risk. 

• Technological obsolescence: companies must keep up with new technologies; otherwise, products can become outdated. 

• Intense competition: many players compete on price and features, which can pressure margins. 

• Seasonal demand: products such as air conditioners and coolers have strong seasonal patterns, which can make demand uneven across the year. 

Key Ratios for Consumer Durables Companies 

Some important ratios and broad benchmarks to consider are: 

• Revenue growth: at least 10 percent per year 

• EBITDA margin: typically 10 to 18 percent, depending on the product segment 

• Inventory turnover ratio: around 4 times or higher 

• Working capital days: less than 60 days is preferable 

• ROCE: at least 15 percent 

• ROE: at least 15 percent 

• Debt-to-Equity ratio: should be less than 1, and for consumer durables companies, ideally below 0.5 

• Price to Earnings (P/E) ratio: often within 25 to 50 times, depending on growth and brand strength 

• EV to EBITDA: usually in the 15 to 25 times range 

• Current ratio: greater than 1.5 

• Promoter shareholding: above 50 percent is comfortable, and 65 percent or higher is often seen as ideal alignment in many cases 

Summary and Takeaways 

The consumer durables sector in India has products that have consistently remained in demand. It is a growing sector with strong long-term structural growth potential. 

Investors looking at consumer durables companies should focus on: 

• Strong and stable margins 

• Healthy ROCE and ROE 

• A clear and defendable competitive moat 

• An expanding market share supported by brand strength, distribution and innovation 

Companies that combine these factors are better placed to benefit from the long-term growth opportunity in the consumer durables space. 

This is all for this video. See you in the next video. 

Disclaimer: Investments in securities markets are subject to market risks. Read all related documents carefully before investing.