Consumer Durables Industry Analysis Research Report

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consumer durables

The consumer durable industry can be classified into the below three segments:
Consumer Durables Industry India

The consumer durable market was INR 812 billion in FY16, it is expected that the market will be INR 1340 billion by FY20. This implies a growth rate of 14% CAGR. It is expected that India would be the 5th largest consumer durable market in 2025 from being the 12th largest currently. 2/3rd of the revenues in the consumer durable industry are generated from urban markets currently and the rest from rural and semi urban markets. The rural and semi urban markets are growing at 25% CAGR and it is expected that they will contribute 50% to the total consumer durable market in the future. It is expected that demand for TVs, laptops and split ACs is to increase in the urban markets. Rural markets are expected to witness increase in demand for refrigerators, ACs and consumer electronics as the government has significantly invested in rural electrification. The industry also provides large employment opportunities, for every one direct job, three indirect jobs are created in the industry. The reforms of the 1990’s saw the influx of global players like LG and Samsung enter the Indian markets. The industry has also seen significant investments over the years, major companies have committed investments to the tune of INR 100 billion in the next few years. The consumer durable sector is an import intensive sector and is the second largest contributor to the current account deficit (CAD). The primary reason for this is the negligible presence of the component manufacturing industry in the country, hence components need to be imported by manufacturers. The government needs to promote the growth of the component sector by providing various initiatives to the component manufacturers.

The Indian white goods market is estimated to be INR 350-400 billion. Washing machines are expected to have a share of 40%, refrigerators 28% and ACs 32%. The white goods market in India is under penetrated as compared to other South Asian countries and also to developed countries. Below is the penetration of white goods in India as compared to the penetration levels of these products in the world

Penetration of White Goods India vs World
Source: Study on Indian electronics & consumer durables segment, E&Y, April 2015

As it can be observed from the above, penetration levels in India are low in all product categories. The penetration of goods in rural areas is even lesser than the figures shown above. Washing machines and refrigerators have penetration of only 0.5% and 2% in the rural market. Given that the penetration levels are low there is huge scope for growth of the white goods market in India. As per study done by a financial institution the market has the potential to touch INR 1950 billion if the country were to reach penetration levels of other South Asian countries. It is also further observed that if penetration of white goods were to reach the levels experienced by other South Asian countries, India’s white good market would be 50% of China’s market. The Indian white good market is 9% of China’s market currently. The white goods market is expected to grow at 10-12% in the future. Organized players are expected to gain market share at the expense of the unorganized players after the introduction of GST. ACs is the major products that are imported in the white good segment, majority of the imports are from South East Asia and China. India also exports white goods to the tune of INR 15-20 billion. ACs and refrigerators are the major exported products. Majority of the exports are to the EMEA region.

Washing machines

Salient features of the Indian washing machine market are:

• Industry size is expected to be 5 million (Mn) units
• Two types to washing machines – semi automatic and fully automatic. Semi-automatic machines comprise 70% of the washing machine segment. Semi-automatic machines are top loading
• Fully automatic can be further classified into front load and top load. Top load machines are preferred due to its lower prices.
• Fully automatic machines growing at +20% CAGR and semi-automatic in the range of 12-15%. Overall industry to grow in the range of 15-20% in the coming years
• Shift seen in demand for fully automatic machines. Price difference between fully automatic and semi-automatic is reducing, leading to the demand for the former. Semi-automatic will see demand majorly from rural areas
• LG, Samsung, IFB, Whirlpool, Videocon and Godrej are major washing machine players in India
• Majority of the revenues come from north India, east is the least penetrated market
• Tier 2&3 towns contribute 40% of washing machine sales
• More women joining the work force will be one of the major drivers of washing machine sales

Refrigerator

Salient features of the Indian refrigerator market are:

• Indian refrigerator market is estimated to be 9 Mn units, of which 2.2 Mn units are in the double door segment. Market is estimated to be INR 93 billion in value terms
• Refrigerator market is expected to grow 20% CAGR for the next few years, has grown in the range of 12-15% over longer periods in the past
• Urban areas account for 75% share in the refrigerator market
• Refrigerator market is divided into two categories – direct cool and frost free. Direct cool refrigerators are mostly single doors and require manually defrosting the fridge
• Direct cool fridges in the range of 170-190 litres are preferred by Indian consumers
• Frost free fridges do not require defrosting as electric fans ensure even circulation of air. Frost free fridges are double door
• Frost free fridges can be classified into 3 types – normal top mounted, bottom mounted and side by side
• Frost free fridges are gaining popularity over traditional models, it is expected that in the long run frost free segment will occupy lion’s share of the market
• Frost free fridges in the 240-270 litre range record the highest sales
• LG, Samsung, Whirlpool, Godrej and Haier are the top players in the refrigerator market

Air Conditioners (ACs)

The Indian AC market covers various verticals like residential, commercial offices, hospitality, retail & others. The residential/ room AC market holds major share in the Indian AC market. Salient features of the Indian residential/room AC market are:

• Room AC market is 4.7 Mn units in FY17, it has grown at CAGR of 13% since FY05. Expected market 7.2 Mn units in FY20, growing by 15% CAGR.
• 200 Mn room ACs have been sold in China in the past 15 years
• North India contributes 38% of sales, South 30%, West 20% and East 12%
• 70% of sales are in the 1.5 tonne category
• Split ACs contribute 87% of industry sales in FY17 with the balance being window AC sales
• Shift in AC demand – demand seen across 7-8 months compared to 4-5 months earlier
• Voltas is leader in the room AC market with 22% market share, LG -16%, Lloyd electric, Daikin & Hitachi – 13% each, Blue Star – 12%, Samsung – 8% and others 3%
• ACs come in fixed speed and variable speed (invertor ACs)
• Invertor ACs sales constitute 10-12% of total room AC sales, it is expected that invertor AC sales will touch 50% of industry sales in 2020
• 60% of sales currently are 3 star fixed speed ACs
• Ingredients for success in the AC market are brand, distribution channel, service centre network & dealer support
• 50-55% of AC volumes come outside of metros/tier 1 cities
• Most AC manufacturers follow the outsource and assembly model
• Voltas and LG offer highest dealer margins in the range of 28-30%, Blue Star offers 25-26%
• AC manufacturers spend 1-7% of sales as advertising expenses
• Voltas and Lloyd electric have 13000 and +10000 dealers, highest among all other players

Brown Goods

The brown goods segment mainly consists of home & kitchen appliances. Salient features of this market are:

• The market is estimated to be INR 100 billion. The premium to mid premium segment is expected to be INR 35 billion It is expected to grow by 12-15% CAGR till 2022
• Unorganized players have 50% share of the market, this will reduce with the introduction of GST and higher incomes. People are willing to spend on branded goods
• Top 5 players control 45% of the market in value terms
• Growing middle class, increasing urbanization, growing number of women joining work force and change in lifestyle are major demand drivers for the brown goods market
• E Commerce companies provide wider distribution, discounts, and easy financing options. These will also drive demand for this segment
• Prominent companies in this segment include Havells, TTK prestige, Bajaj electrics, Hawkins, Butterfly gandhimathi appliances

Consumer Electronics (Television – TVs)

India’s electronics market stood at INR 6500 billion in FY17. The consumer electronics market is estimated to be between INR 750-800 billion. The television market forms the major component of the consumer electronics market, it is estimated that the TV market is between INR 650-700 billion. India has the world’s third largest TV industry. It has grown at 12% CAGR over FY09-16 period, it is expected that the TV industry will grow at 15% CAGR over the next 3 years and stand at INR 1000 billion. Penetration of TVs per 1000 population in India stands at 179, this is in comparison to 856 and 772 per 1000 in USA and China. The average penetration of TV sets per 1000 in the world is 538. There is immense scope of increase in TV penetration levels in India. Technological developments in the TV industry have led to the replacement of cathode ray tube display TVs (CRT) to flat panel displays like plasma, LCD and recently LED TVs. Major TV players like LG, Samsung, Sony are introducing new technologies like curved panel display, OLEDs and 3D televisions in the market. The Indian TV market is 12 Mn units and is growing by 17%. Majority of the sales are in flat panel display category with CRTs having a negligible share. It is expected going forward that CRT display TVs will be totally replaced by flat panel display TVs. Major tilt is also seen towards LED TVs as price differential between LCD and LED TVs is narrowing. Some of the major players have stopped production of LCDs and are concentrating on LED and smart TVs. 60% of sales in the flat panel segment are in the 32+ inch category. This is the fastest growing category in the TV market. TVs in the less than 32 inch category are losing market share. Major sales of TVs come from north and west India. Samsung, LG and Sony are the market leaders in the TV market with combined market share of 70%. Samsung is the leader with 27% followed by LG and Sony which have market shares of 25% and 18% respectively. Global giants are facing competition from home grown Indian companies like VU technologies, Intex and Micromax. These companies target tier 2& 3 towns, sell their products at 30-35% discount to international brands, and have tie ups with e-commerce players to sell their products. The three players combined have a market share of 20% of the flat panel display market.

Government Initiatives

Various government initiatives and policy decisions that will aid to the growth of this sector are:

• National policy on electronics,2012 was launched to achieve two objectives- to transform India into a global hub for electronic system design and manufacturing (ESDM) and expand the manufacturing base of electronic products
• The goals for 2020 under this scheme is attract investments worth $100 billion, enhance exports to $ 80 billion and achieve turnover of $ 400 billion and generate employment of 28 million by 2020
• 100% FDI is permitted in electronics hardware manufacturing under the automatic route
• FDI in single brand retail has increased from 51% to 100%, FDI is expected to increase to 51% in multi brand retail
• Export oriented units (EOUs), electronic hardware technology parks (EHTPs) and special economic zones (SEZs) are exempted from various state and central taxes, duty free imports and initiatives for procuring goods domestically
• Steps have been taken to create skilled manpower in this sector. Setting up of colleges for imparting education in the field of electronics, 2500 PHDs in the electronics field and special incentives to college students are some of the initiatives that have been taken in this area
• INR 70 billion electronic development funds has been set up to promote innovation and create intellectual property rights
• Custom duties have been reduced on input items like wires, cables, compressors
• Majority of the consumer durable products come under the 28% tax rate under GST, the tax rate for this sector earlier was in the range of 25-27%. This may impact consumer sentiment in the short term, however in the long run a unified tax for the sector is a positive
• Exporters can avail benefits under market access initiative (MAI) and market development assistance (MDA) schemes for export of electronics and IT hardware products

Drivers of the Industry

Growth drivers for the consumer durable industry are as below:

• Rising disposable incomes, change in customer tastes and preferences, large no of people joining work force every year will drive demands for products in this category
• More than 50% of India’s population is under 25 years and 1/5th of the world’s working population will be in India
• Ease of availing consumer credit from financial institutions and lower interest rates
Governments smart city project can led to exponential demand for products in this segment
• Rural electrification scheme will drive demand for consumer electronics and white goods in rural areas
• Prime minister’s vision of doubling farm income by 2022 if executed will help the industry immensely
• Seventh pay commission will result in more money in the hands of government employees who can then purchase products in this segment
• Rise in the share of organized retail. Market share of 3% currently, expected to rise to 15-18% in the near future
Online shopping on flipkart and amazon to give fillip to the sector and will also expand the segment
• Penetration levels across product categories in the consumer durable segment the lowest, penetration levels are even lower in rural areas
• Huge scope for tapping first time buyers, majority of sales in urban markets currently are replacement sales
• Product innovation and availability of variety of products
• Several government policy initiatives
• Huge investments in the sector, investments to the tune of INR 100 billion have been committed by consumer durable companies for the near future
• Replacement cycle for products has reduced from 9-10 years earlier to 4-5 years currently
• Products like ACs, washing machines, higher end TVs are no longer considered luxuries
• Nuclear families and women joining the work force will drive demand for products like washing machines, kitchen appliances and dishwashers
• Promoting setting up of component industry will result in lesser imports. This will finally help in reduction of prices as components will be manufactured and procured locally
• Lower labour costs and large consumer market will encourage global consumer players to set up manufacturing units in India
Increasing labour costs, other costs like real estate, taxes and shift in governments focus on local consumption in China will benefit countries like India
• GST will positively impact the sector, additionally logistics cost will come down which will help in reduction in costs of products

Challenges

Some of the challenges faced by the Industry are:

• Underdeveloped component and raw material industry. Current players also do not have the scale to meet demands of manufacturers. Quality of inputs produced is not competitive to imports from other South Asian countries
• Competition from South Asian countries and China
• Capital intensive business, manufacturers need to invest regularly to stay in business
• Infrastructure bottle necks need to be addressed

Listed Companies

Below are companies in the white goods and domestic appliances space which are listed on the Indian bourses. Samsung, LG & Sony which are the leaders in the TV market in India are not listed on the Indian exchanges.

White Goods

White Goods
Source: www.moneycontrol.com

The market cap of listed white good companies is INR 5,72,830 Mn and its combined sales are INR 2,02,220 Mn. MCAP/Sales for the white good space is 2.83. Voltas has diversified stream of revenues, ACs being one of them.

Brown Goods

Brown Goods
Source: www.moneycontrol.com

The market cap of listed brown good companies is INR 1,25,300 Mn and its combined sales are INR 68,440 Mn. MCAP/Sales for the brown goods space is 1.83. Havells also has a presence in the brown goods space, it also generates revenues from switches and wires. The market cap of Havells as on 4-9-17 was INR 3,03,130 Mn and its sales for year ending FY17 were INR 61,350, its MCAP/Sales ratio was 4.94.

You may be also interested in: Two Wheeler Industry Report 2017

Final Thoughts

The global consumer durable industry is estimated to be $13-15 trillion, India is 5-7% of the global consumer industry. There is huge run way for the Indian consumer durable industry. Global companies are looking at India seriously as this is a high growth market for them. There is scope for domestic Indian companies to have a global presence. Domestic factors like favourable demographics, higher disposable income, brand awareness, willingness to spend on brands and favourable government initiatives among others will propel the Indian consumer durable industry going forward.

Disclaimer: This article/report is based on data from sources considered to be reliable. However, Fintapp does not guarantee or warrant the accuracy or completeness of the information. The information is not intended to be used as the primary base for investment decisions. The articles/reports are strictly for educational purposes only. Team Fintapp may or may not have positions in the stocks discussed. Fintapp is in the process of acquiring SEBI registered investment advisory licence.

References:
Reports
Consumer durables report – IBEF, July 2017
Study on the Indian electronics and consumer durable segment – E&Y, April 2015
Room air conditioners – Motilal Oswal, April 2017
Washing machine and emancipation of women – Dr C Anirvinna

Websites
www.thehindubusinessline.com | www.economictimes.com | www.outlookbusiness.com | www.financialexpress.com | www.businessworld.in | www.livemint.com | www.amritt.com | www.prnewswire.com | www.forbes.com | www.statista.com | www.careerizma.com

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