Consumer Durable Channel-check Update

Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Consumer Durable Channel-check Update Air conditioners demand momentum continues in Apr-May 16; Stabilizer sales stays strong; Electrical and kitchen appliances yet to see a recovery Large appliances air conditioners demand stays firm, April the best month Our interaction with dealers/distributors on a pan India basis suggest that air conditioners have registered strong growth in the months of April-May. April has been the best month for all air conditioner players with many large multi brand outlets and dealer reporting > 40% yoy growth. May has registered growth, but at a relatively lower level than April given the unseasonal rains in the Southern markets and certain level of early buying done in April itself. Demand in June is expected to be robust, due to favorable weather conditions in the rthern markets. Among brands, Daikin has registered strong growth across pan-india market driven by increased engagement with dealers. Blue Star should see better than market level growth (>30% y-o-y) rate due to increasing presence in non-south market and improving distribution. Voltas should see strong growth (>25% y-o-y) due to its strong presence in rthern market where demand scenario remains robust. Refrigerator demand was healthy >15% y-o-y over the past two months. Washing machine growth was relatively lower at 10% yoy. Our channel interactions suggest that Godrej Appliances (part of Godrej & Boyce) has been aggressive in the market by launching new models/ranges across its portfolio and has priced its products at a discount to the top three players (LG, Samsung and Whirlpool). While we acknowledge Godrej s increasing market presence, WHIRL should see healthy growth in the medium term driven by an overall category growth and WHIRL s channel push. Electrical Products Demand stays lukewarm, pricing pressure prevails in cables, LEDs Dealer interactions across electrical outlets indicates that volume growth for housing led products cables, switches, switchgears and lighting continue to witness lukewarm traction on the back of weakness in housing demand. Subdued copper prices have kept value growth for cable players under check, inspite of volume increase. A round of price cut is already underway in the cables market apart from a price cut taken by players in April (cumulative price cut is ~10% since April). In lighting segment, LED product prices continue to witness corrections (~15% reduction in the past two months). Strong volume growth due to shift from CFL/GLS bulbs to LED is leading to value/revenue growth. Growth in stabilizers has remained strong driven by strong air conditioner sales (which constitutes >60% of overall stabilizer demand). Stabilizers growth across key V-Guard dealers has been >15% y-o-y Kitchen appliances Muted traction across products Demand for kitchen appliances has stayed muted in Apr-May. Traction for cookers has been only moderate, with growth for branded player in inner lid cookers being subdued in non-south market due to the drought situation prevailing. For TTKPT, clip-on cookers has seen healthy traction thereby sustaining overall cooker growth. Among appliances, while gas stoves segment has seen robust growth, increased competition from new brands like Vidiem has capped growth for TTKPT. Traction for recently launched cleaning products needs to be monitored Our Views and Top Picks We continue to have a positive view on large appliances category due to low market penetration levels, premiumization possibilities with medium term triggers (7 th pay commission related spend) providing strong earnings visibility. We retain our BUY stance on Blue Star (BLSTR), Voltas (VOLT) and Whirlpool (WHIRL). We believe electrical appliance market, especially housing driven products, are unlikely to see strong demand pick-up in the medium term. We retain our negative stance on Havells (HAVL), Bajaj Electricals (BJE) and positive on V-Guard (VGRD). In Kitchen appliances, we expect cost of growth for incumbents to remain high due to emergence of new competition. We maintain our negative stance on TTKPT. Channel Check Update Market data BSE SENSEX 27,050 Nifty 8,271 Performance 1m 3m 12m Sensex 7% 10% 1% BLSTR 5% 27% 36% VOLT 10% 37% 1% WHIRL 10% 25% 12% BJE -6% 26% -20% HAVL 6% 28% 31% CRG 22% 46% 26% VGRD 4% 58% 52% TTKPT 4% 9% 16% BSE CG Index vs Sensex - Relative performance 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% -40% CG Index Sensex VIJAYARAGHAVAN SWAMINATHAN raghavan@sparkcapital.in +91 44 4344 0022 RAVI SWAMINATHAN ravi@sparkcapital.in +91 44 4344 0058 Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 1

Air conditioners demand stays strong, electrical and kitchen appliance players see low growth Air conditioner demand has stayed strong in Apr-May 16 Viveks A large Multi Brand Outlet in South India Demand for air conditioners was robust in April (>40% yoy growth) due to a strong summer. Unseasonal rains in May has led to a lower growth trajectory. Among brands Daikin, Blue and Voltas has done well Girias - A large Multi Brand Outlet in South India Traction for air conditioners was strong in April but has cooled down in May due to rains. Voltas and LG have seen healthy growth. They have not engaged with Blue Star and Daikin yet. Large rth based dealers Air conditioners sales had seen a pick-up from April and has sustained so far due to favourable weather conditions. Source: Spark Capital Research Whirlpool Channel Check Takeaways Identifying the product gaps vis-à-vis LG and Samsung and fixing the same within the next twelve months is the key focus area. In the last 18 months, Whirlpool is holding its market share despite the aggressive push from LG in Direct cool and Samsung in frostfree refrigerators due to additional touchpoints created especially in Tier-2/Tier-3 cities. Our dealerchecks suggests that Whirlpool is not giving counter-attack in refurbishing its SKUs consistently compared to LG and Samsung while Godrej (#4 player in refs and washers) is more visible with its new series of products. Refrigerators is witnessing decent growth while washing machine is yet to see a demand pick-up. Microwave ovens demand is declining steadily. This is largely due to shift from ovens to induction cooktops since the former is largely used for heating application. Whirlpool has 2.5% market share in air conditioners in FY16 and is planning to increase the market share further. More trade discounts coupled with higher ad-spends for this cateogory is helping Whirlpool to clock higher volumes albeit from a low base. Increasing trend of higher trade discounts is largely attributable to more dealer commission for airconditioners as per our dealer interaction. With its parent acquisition of Italy based Indesit, Whirlpool India plans to bring the front loader category into Indian markets. With the indigenous manufacturing by Bosch and Siemens from its Chennai facility giving challenges to market leader IFB, we do not think Whirlpool can compete in pricing with their strategy of bringing frontloaders to Indian markets from Europe. Source: Spark Capital Research Refrigerators and Washing Machine - Godrej appliances has seen strong growth over the past few years 50 40 30 20 10 0 Source: Companies, Spark Capital Research Growth across kitchen appliance players has been muted in FY16 Company FY15 FY16 Source: Companies, Spark Capital Research YoY Growth TTK Prestige 13,883 15,251 10% Hawkins 5,144 5,543 8% Butterfly (branded sales) 4,847 5,373 11% Company 4QFY15 4QFY16 YoY Growth TTK Prestige 2,862 3,077 8% Hawkins 1,572 1,572 0% Butterfly (Brande Sales) Godrej Appliance vs. Whirlpool - Revenue (Rs. bn) 33 35 35 28 28 28 20 16 FY13 FY14 FY15 FY16 FY17E Godrej Appliance Whirlpool Godrej Appliances has launched a range of new products across refrigerator, washing machine and air conditioners including the premium range NXW. The company has registered ~30% CAGR in FY13-FY16 and has registered faster growth than other top players driven by aggressive channel push. 655 1,091 67% 45 39 Growth for kitchen appliance players has been lukewarm in both 4QFY16 and FY16. Muted growth in cooker and cookware has dragged both TTKPT and HAWK s growth. Butterfly has grown in 4QFY16 only due to a low base. Demand scenario in Apr-May has also been lackluster on a pan- India basis. Page 2

Valuation Summary Company FY15-FY18E CAGR EBITDA Margin RoCE RoE Revenue EBITDA PAT FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E BJE 9.4% 50.9% NM 2.1% 5.6% 5.6% 5.5% 5.3% 15.7% 19.2% 19.3% -2.0% 13.3% 15.5% 15.7% BLSTR 17.1% 29.6% 43.3% 5.3% 5.7% 6.1% 7.1% 16.0% 14.6% 16.1% 20.6% 19.7% 18.4% 20.4% 25.7% CROMPTON 13.2% 9.5% 7.6% 12.8% 11.8% 11.9% 11.6% - 36.5% 40.5% 42.8% - 101.0% 83.3% 58.3% HAVL 5.9% 13.7% 18.3% 8.9% 10.0% 10.7% 11.1% 18.6% 25.1% 32.9% 36.4% 23.4% 27.9% 34.8% 37.9% TTKPT 12.9% 19.7% 16.2% 10.7% 12.0% 12.5% 12.8% 14.3% 16.8% 17.2% 18.5% 14.6% 17.3% 18.0% 19.6% VGRD 11.5% 22.9% 33.0% 7.6% 9.6% 10.0% 10.2% 19.0% 25.0% 26.4% 26.3% 20.3% 26.3% 26.5% 26.4% VOLT 14.0% 15.5% 28.8% 7.9% 7.5% 7.7% 8.2% 16.4% 14.7% 14.9% 16.0% 17.3% 15.6% 15.9% 16.9% WHIRL 10.4% 17.2% 42.1% 10.1% 10.9% 11.5% 12.0% 25.1% 23.9% 22.3% 21.6% 25.4% 23.8% 22.2% 21.6% Company CMP Shares MCAP EPS (Rs.) P/E Target valuation (Rs.) Rs. mn Rs. mn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E Tgt PE Other biz TP Rating BJE 225 100 22,489-1.4 9.5 12.3 14.0 NA 23.7 18.3 16.0 15.0 39 208 Sell BLSTR 441 90 39,668 10.6 11.5 16.0 23.6 41.5 38.3 27.6 18.7 20.7 0 489 Buy CRG 133 627 83,358 4.3 3.7 4.5 5.3 31.2 36.1 29.8 25.0 24.0 0 128 Sell HAVL 362 624 2,25,852 6.2 7.8 10.2 11.8 58.6 46.3 35.5 30.6 25.0 0 278 Sell TTKPT 4,620 12 53,823 77.2 101.8 117.1 141.1 59.9 45.4 39.5 32.7 25.0 129 3822 Sell VGRD 1,323 30 39,488 23.6 37.1 45.5 54.8 56.1 35.6 29.1 24.1 25.0 0 1370 Buy VOLT 336 331 1,11,115 10.2 10.4 12.0 14.3 32.9 32.2 28.0 23.5 25.1 0 359 Buy WHIRL 788 127 99,974 16.6 19.5 22.9 27.8 47.6 40.3 34.4 28.4 30.0 0 833 Buy Other business: BJE Rs. 39 for Engineering business based on 10x FY18E EPS; TTKPT Rs. 129/share of realty value; VOLT 25x FY18E earnings for UCP segment and the engineering products and 15x for EMP segment Page 3

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