Coronavirus blues for AC, refrigerator companies; may see 39% cut in earnings

As the coronavirus outbreak continues its blows on India’s economy, consumer durables companies are also in for a major earnings loss. “The ongoing lockdown and its impact on the economy in the near term have led to 8-39% cut in our FY21-22 earnings estimates for both consumer electrical and durable companies,” an Emkay Global Financial Services report said on Friday. These companies may see zero business in April and a gradual recovery from Q2FY20, the report added. While it is difficult to assess the actual recovery time for demand, companies which depend on seasonal products and B2B segments will take more time to recover.

ACs and refrigerators have witnessed a sales decline in March as India has been put under a 21-day lockdown due to the virus outbreak. While both of these categories witnessed higher on-year sales in both January and February, the same met a downward trajectory in March, according to a Motilal Oswal report. “It was not possible to take preemptive measures (such as liquidation of inventory) to circumvent the impact on sales as the event was the first of its kind in the last few decades,” the report said. However, hopes abound for AC sales if temperatures soar and businesses resume operations by 15th April. 

When news started pouring in from China about the virus outbreak, dealers and retailers stocked up on AC inventories and other seasonal products due to supply side concerns. “Normally, inventory levels during this season are 30–40 days. Also, since Gudi Padwa fell in the first week of lockdown, expected festive sales were lost,” the Motilal Oswal report said.

Meanwhile, consumer durables companies are not the only one in loss due to the coronavirus outbreak. Aviation industry, retail sector and hospitality industry are also staring at massive revenue losses according to several reports and industry leaders. Job losses are also expected in the aftermath of coronavirus as the economy remains shut for several weeks.