Consumer Durables & EMS (Q3FY26 Results Preview): Soft durables demand; EMS growth moderate

After a subdued H1FY26, demand in most consumer durables categories remained soft through Q3FY26, though it has gained momentum since. Ahead of BEE norm changes for RAC and fans effective January, our channel checks reveal distributors accumulated stocks by late December. Wires and cables are set to post strong performance, propelled by price increases, even as rising input costs create margin headwinds. Revenue in the lighting segment should grow in low single digits, bolstered by higher volumes but tempered by price erosion. Kitchen appliances are forecasted for mid-single-digit growth, while momentum for the water purifier segment has slowed down. We expect our consumer durable universe to register a revenue/EBITDA/PAT growth of 6/1/-1% YoY.  The EMS universe should sustain its growth trajectory, though at a moderate pace, led by (i) a slowdown in mobile division for Dixon Technologies and (ii) subdued demand in RAC segment, weighing on Amber Enterprises’ performance. We expect Kaynes Technology and Syrma SGS to continue to report healthy topline growth. We expect our EMS universe’s revenue/EBITDA/PAT to grow by 11/22/17% YoY.

Demand remains soft: Demand for RAC, coolers and fans stayed subdued amid unfavorable weather and elevated channel inventories, squeezing margins. Growth has since accelerated versus H1. With BEE norms tightening for RAC and fans from January, channel checks confirm distributors ramped up stocks by late December. The wires and cables segment continues delivering robust performance via price hikes, despite rising input costs weighing on margins. Lighting revenue is set to grow in low single digits, driven by higher volumes but moderated by price erosion. Kitchen appliances should see mid-single-digit growth, while water purifier momentum has eased. We expect our consumer durable universe to register a revenue/EBITDA/PAT growth of 6/1/-1% YoY.

Key input prices surged: Metals maintained their upward momentum in Q3, mirroring H1 trends. Copper jumped ~28% YoY (+15% QoQ), while aluminum rose 16% YoY (+10% QoQ). In contrast, polypropylene prices corrected, declining 7% YoY (-5% QoQ).

Electronics Manufacturing Services (EMS): The EMS universe is expected to continue growing, albeit at a slower pace and the (i) slowdown in mobile division for Dixon Technologies as well as (ii) subdued RAC demand should weigh on Amber Enterprises’ performance. We expect Kaynes Technology and Syrma SGS to continue to report healthy topline growth. We expect our EMS universe’s revenue/EBITDA/PAT to grow by 11/22/17% YoY.

Valuation: Given elevated competition, we have lowered valuation multiples for ECD-focused companies (see exhibit 2). The table below (exhibit 2) details updates to estimates, target multiples, price targets, and ratings across our coverage. We have rolled forward target prices for the consumer durables universe to Mar-28E EPS (previously Sep-27E), except Voltas and Eureka Forbes (updated earlier). For EMS companies, we now use DCF valuation over PE, as it accounts better for earnings volatility from capex cycles, incentives, and moderating growth.

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Source: HDFC Securities Institutional Equities

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