These proxy small cap stocks could help you ride the electronics wave
companies that make air-conditioners. Leading firms such as PG Electroplast and Epack Durable reported more than 70% year-on-year growth in the June quarter. These companies design and make air-conditioners for famous brands such as Voltas, Blue Star and Samsung, apart from washing machines and electronic appliances.
They are called original design manufacturers (ODM). Electronics manufacturing services (EMS) is another term used for companies that design, manufacture, test, distribute, and provide services for electronic components and assemble them for original equipment manufacturers (OEMs). In the case of ACs, Voltas, Blue Star and Samsung command more than 90% of the ODM market.
With the Make in India push and PLI scheme support, these companies have undertaken significant capacity expansion. The reason these companies had blockbuster results was the rise in heat waves across the country, which caused the demand for ACs to spike. Much of this demand was from tier-2 towns and villages.
What used to be a luxury is now a necessity. Neither the leading brands nor the ODMs had anticipated this, but as demand outstripped supply, their order books overflowed and they made huge money. India, despite its harsh summers, has very low AC penetration.
It stands at just 8%, versus 100% in China and 90% in the US and Japan. India also lags economies such as the Philippines and Mexico on this metric. So even if similar demand is not seen next year, AC penetration in India has a long way to go.
One way to bet on this is by investing in companies such as Voltas, Blue Star, and ODMs such as Amber, PG Electroplast and Epack Durable. Exciting as this opportunity may be, one should be wary of these companies’ high valuations. With their
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