A

BRIEF REPORT

ON

CONSUMER DURABLES INDUSTRY IN INDIA

May, 2014


















1.1

Private & Co

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India is
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he major sh
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A brief report on C

RABLES M
and in the
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the consum
ket in India (
e Industry in India
Page 2 of 11
T
ears as the
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A brief report on Consumer Durable Industry in India

Private & Confidential Page 3 of 11

This sector is expected to post a CAGR of 15% over 2010-15. Growth in demand from rural and
semi-urban market is estimated to outpace demand from urban market for consumer goods.

Consumer durables market is estimated to expand at a CAGR of 14.8 per cent to US$ 12.5 billion in
FY15 (from US$ 7.3 billion in FY11). Rural and semi-urban markets are likely to contribute a
majority of consumer durables sales.

1.2 Key Categories

The Indian Consumer Durables segment can be segmented into three groups:














White goods Brown goods Consumer electronics
Air conditioners
Refrigerators
Washing Machines
Sewing Machines
Watches and clocks
Cleaning equipment
Other domestic appliances
Microwave Ovens
Cooking Range
Chimneys
Mixers
Grinders
Electronic fans
Irons
TVs
Audio and video systems
Electronic accessories
PCs
Mobile phones
Digital cameras
DVDs
Camcorders

Brown goods

This is a highly penetrated market
Electric fans are an essential utility for more than six months of the year in most parts of the
country




Categories
White Goods
Brown Good
Consumer
Electronics
1.3

Private & Co

Househ


Indias
US$21.7
2011 IC

3 Market















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hold Applia
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A brief report on C

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Consumer Durable


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Page 4 of 11
a value of
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A brief report on Consumer Durable Industry in India

Private & Confidential Page 5 of 11

2. MAJOR PLAYERS


2.1 Samsung India

Samsung India commenced its operations in India in December 1995, today enjoys a sales turnover
of over US$ 1 billion in just a decade of operations in the country. Samsung design centres are
located in London, Los Angeles, San Francisco, Tokyo, Shanghai and Romen. Samsung India has its
headquartered in New Delhi and has a network of 19 Branch Offices located all over the country.
The Samsung manufacturing complex housing manufacturing facilities for Colour Televisions,
Colour Monitors, Refrigerators and Washing Machines is located at Noida, near Delhi. Samsung
Made in India products like Colour Televisions, Colour Monitors and Refrigerators are being
exported to Middle East, CIS and SAARC countries from its Noida manufacturing complex.
Samsung India currently employs over 1600 employees, with around 18% of its employees working
in Research & Development.

2.2 Whirlpool India

Whirlpool was established in 1911 as first commercial manufacturer of motorized washers to the
current market position of being world's number one manufacturer and marketer of major home
appliances. The parent company is headquartered at Benton Harbor, Michigan, USA with a global
presence in over 170 countries and manufacturing operation in 13 countries with 11 major brand
names such as Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. Today,
Whirlpool is the most recognized brand in home appliances in India and holds a market share of
over 25 per cent. The company owns three state-of-the-art manufacturing facilities at Faridabad,
Pondicherry and Pune.

2.3 LG India

LG Electronics was established on October 1, 1958 (As a private Company) and in 1959, LGE
started manufacturing radios, operating 77 subsidiaries around the world with over 72,000
employees worldwide it is one of the major giants in the consumer durable domain worldwide. The
company has as many as 27 R & D centers and 5 design centers. Its global leading products include
residential air conditioners, DVD players, CDMA handsets, home theatre systems and optical
storage systems.

2.4 Godrej India

Godrej India was established in 1897. The company was incorporated with limited liability on March
3, 1932, under the Indian Companies Act, 1913. The Company is one of the largest privately-held
diversified industrial corporations in India. The Company has a network of 38 Company-owned
Retail Stores, more than 2,200 wholesale dealers, and more than 18,000 retail outlets. The company
has Representative Offices in Sharjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi
Arabia) and Guangzhou (China-PRC).



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2.5 Sony India

Sony Corporation, Japan, established its India operations in November 1994. In India, Sony has its
distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive
outlets and 21 direct branch locations. The company also has presence across the country with 21
company owned and 172 authorized service centres.

2.6 Hitachi India

Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and sells a wide
range of products ranging from Power and Industrial Systems, Industrial Components &
Equipment, Air Conditioning & Refrigeration Equipment to International Procurement of software,
materials and components. Some of HILs product range includes Semiconductors and Display
Components. It also supports the sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards
and DVD Camcorders.





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3. GOVERNMENT INITIATIVES


3.1 Recent Developments/ Investments

To acknowledge the fast growing online consumer base, Multi Screen Media (MSM) has recently
launched its video-on-demand service Sony LIV. The new offering aims at providing
entertainment on the go for young India. Apart from enhancing the way entertainment is
consumed in India, this user-friendly and interactive application is also a great platform for
brands to strengthen their engagement and interaction with young consumers. The Sony LIV
application is available globally for free, online on sonyLIV.com and for download on major
App stores iTunes and Google Play

Samsung has launched curved televisions in the Indian market priced between Rs 100,000
449,000 (US$ 1,667.637,487.65) to tap high-end buyers. Under its curved range, the company is
offering a range of 10 television models with ultra-high definition (UHD) and LED
technologies. This technology should get adopted, we feel very strong. Its a global trend.
People are now looking at much and much better picture quality and immersive nature of the
TV, which we do not have till now.

Kerala-based Paragon, which helped popularize branded rubber chappals in India, is now
actively looking at new growth drivers. The Rs 1,400 crore (US$ 233.38 million) footwear maker
is diversifying into trendier products such as sports shoes and non-leather formal footwear,
before finally stepping into the larger leather footwear market.

Canon India plans to get into the network security camera market. We have made forays into
photo albums, cinematography and medical imaging. Sometime later this year, we will launch our
first product in the Indian security camera market.

Amul has clocked its highest ever growth in FY 2014, riding on a sharp rise in exports and entry
to new markets. We have achieved 32 per cent growth in our annual turnover which is the
highest ever growth since it was set up in 1973.

Amway India plans to increase its proposed investment in its Tamil Nadu facility, with more
production lines to manufacture its complete range of nutrition and beauty products. The
company will invest Rs 150 crore (US$ 25 million) over and above the originally proposed Rs
400 crore (US$ 66.67 million) in the manufacturing facility that is coming up at Nilakottai near
Madurai. It is expected to start commercial production by the end of 2014.

UK-based Reckitt Benckiser, the household goods manufacturer that sells Dettol antiseptic and
Harpic toilet cleaners in India, among other brands, has set a target to reach over 200 million
people by 2020 to improve their health and hygiene behavior.


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3.2 Government Initiatives

The Indian Government is majorly concerned about the development of rural markets and hence,
keeps introducing policies and initiatives to encourage their growth.

In a bid to make economic development inclusive, the Indian Government has initiated many
schemes and programs that aim at improving the standard of living in India villages or rural areas.
For instance, the Government launched a time-bound business plan for action called Bharat Nirman
for enhancing the infrastructure in hinterlands. Under this program, action is proposed in the areas
of Water Supply, Housing, Telecommunication and Information Technology, Roads, Electrification
and Irrigation.

Apart from that, the Government is considering enhancing the authorised capital of National Bank
for Agriculture and Rural Development (NABARD) to Rs. 20,000 crore (US$ 3.71 billion) from Rs.
5,000 crore (US$ 928.49 million). The increase in authorised capital is aimed at enhancing the
operations and broadening the scope of activities of NABARD.

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4. CHALLENGES, OPPORTUNITIES & FUTURE PROSPECTS

4.1 Challenges and Opportunities

The consumer durables sector in India is one that will be passing through some very interesting
times. On the one hand there is substantial scope for expansion as the favourable demographics of
India are a positive for the sector.

On the other hand there are factors like increasingly expensive raw materials as well as competition
that will have a detrimental effect on the sector.

But there are issues that the sector will have to face and the rising interest rate regimen is one of the
first. Consumer durables are slightly interest rate sensitive. So, the current high interest rate scenario
means that some sluggishness in demand can be expected.

But, rising incomes have been pushing up the demand for consumer durables in India and,
therefore, I will not be surprised, if demand sustains, though at a slightly reduced rate.

Another factor that is going to affect the sector is competition. There is intense competition among
players leading to higher ad spends and lesser pricing power, thereby lowering margins. While
market leaders in the various categories are emerging, the other companies are finding that it is a
tough going.

And the raw material scenario for the sector too is going to be problematic for the sector. Raw
materials, as inputs vary as much as there is variety in consumer durables. Some of the main inputs
are natural rubber used in tyres, and metals & polymers, which constitute the body and/or the
electrical/electronic components.

With continuous changes in the psychographic and demographic profile of the consumer, the raw
materials as well as the products are required to undergo persistent changes to meet not only the
varying demand, but also to meet the packaging and transportation needs, to improve the time and
place utility of the product, as well as in product differentiation. This would mean that consumer
durable sector would continue to rely heavily on advancements in technology.

Since the industry is likely to do well for many more years to come, investing in stocks in the
industry, when the prices correct would be a good idea.

Domestic markets are growing at a brisk pace with continued dependence on imports.
About 30-35% electronic components required for local equipment manufacturing are
available from domestic sources. For semiconductors, there is almost 100% dependence on
imports.
Inverted Duties due to dual use of Inputs such as Plastics, Copper, Aluminium, etc continue
to plague hardware manufacturers. Specific items are covered under Customs Notification
25/99, although the procedure for claiming this benefit is extremely convoluted and time
taking
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Domestic Taxes and Levies impose Fiscal Disabilities with very high indirect taxes
Cascading impact of CST on components detrimental for finished products manufacturing
High cost of Finance, Power and Logistics/ Regulatory and Procedural problems add to
disabilities estimated at 7-8%. This discourages capital intensive, high value add investments
in manufacture of components / parts which require high and long term investments
necessitating a supportive fiscal and infrastructural environment.

4.2 Swot Analysis

4.2.1 Strengths
Presence of established distribution networks in both urban and rural areas
Presence of well-known brands
In recent years, organized sector has increased its share in the market vis a vis the
unorganized sector.

4.2.2 Weaknesses
Demand is seasonal and is high during festive season
Demand is dependent on good monsoons
Poor government spending on infrastructure
Low purchasing power of consumers

4.2.3 Opportunities
In India, the penetration level of white goods is lower as compared to other developing
countries.
Unexploited rural market
Rapid urbanization
Increase in income levels, i.e. increase in purchasing power of consumers
Easy availability of finance

4.2.4 Threats
Higher import duties on raw materials imposed
Cheap imports from Singapore, China and other Asian countries

4.3 Future Prospects

India is emerging as the third largest internet market and its e-commerce business is likely to touch
Rs 4,000 crore (US$ 742.76 million) in 2015 against Rs 1,200 crore (US$ 222.83 million) at present.

Also, with mobiles becoming a major medium for advertising and content delivery, every three out
of four users in the country are expected to access the net through a mobile phone by 2015. During
2012-22, cumulatively around US$ 500 billion of ad spend is expected to happen on mobile phones,
according to industry estimates.

Moreover, companies in the last decade have positioned tea and coffee as recreational products,
which have majorly attracted younger population. Growing at a compounded annual growth rate
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(CAGR) of 20 per cent, it is expected to touch Rs 33,000 crore (US$ 6.13 billion) by 2015 from the
current level of Rs 19,500 crore (US$ 3.62 billion) (in 2011).. Domestic coffee outlets, which have a
lot of appeal for the new generation, are set to double over 2012-15, majorly driven by the foray of
global players such Starbucks and Dunkin Donuts in India.


3.1
8.3
10.4
12.5
208.3
375
0 50 100 150 200 250 300 350 400
Whirlpool
Blue Star
Haier
Videocon
Panasonic
LG
Upcoming Investments by Major Players (USD billion)