A

BRIEF REPORT

ON

CONSUMER DURABLES INDUSTRY IN INDIA

March, 2013


















A brief report on Consumer Durable Industry in India

Private & Confidential Page 2 of 11

1. OVERVIEW OF CONSUMER DURABLES MARKET



1.1 Overview

Growth of the consumer durables sector is poised
for growth as disposable incomes grow. Also,
increasing electrification of rural areas would
augment demand. This sector attracted significant
investments even during global recession. Rural
markets is expected to grow at a compound
annual growth rate (CAGR) of 25 per cent from
US$ 2.1 billion in FY10 to US$ 6.4 billion in
FY15.

100% FDI allowed in the electronics hardware-
manufacturing sector under the automatic route. The consumer durables market recorded
revenues of US$ 7.3 billion in FY11. During FY03-FY11, the industry expanded at a CAGR of
12.2 per cent.

Urban markets account for the major share (65 per cent) of total revenues in the consumer
durables sector in India. Demand in urban markets is likely to increase for nonessential products
such as LED TVs, laptops, split ACs and, beauty and wellness products. In rural markets,
durables like refrigerators as well as consumer electronic goods are likely to witness growing
demand in the coming years.

Rural,
35%
Urban,
65%
Shares in the consumer
durables market in India (FY11)
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* Latest data as available

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
Microwave Ovens
Cooking Range
Chimneys
Mixers
TVs
Audio and video systems
Electronic accessories
PCs
2.9
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3.5
3.8
4.2
4.7
5.2
6.3
7.3
0
1
2
3
4
5
6
7
8
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Size of the consumer durables market (USD billion)
Categories
White Goods
Brown Good
Consumer
Electronics
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Watches and clocks

Cleaning equipment
Other domestic appliances
Grinders
Electronic fans
Irons
Mobile phones
Digital cameras
DVDs
Camcoders

Brown goods

This is a highly penetrated market
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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
French food company Danones Indian subsidiary Nutricia International (specialising in baby
and medical nutrition), has revealed its growth plan for India wherein it intends to double its
sales over 2013-16 first, by consolidating the local brands (which it acquired from Wockhardt
nutrition) and then, introducing select brands from Danone's international nutrition portfolio
(based on its understanding of the Indian market). Nutricias baby nutrition portfolio comprises
of brands such as Farex, Dexolac and Nusobee
The baby food market in India is growing at an annual rate of 15-20 per cent and the company is
vying for a major share in the same
US coffee chain Starbucks, which opened its seventh store in the country (in New Delhi)
considers India among the top five global markets for its growth in the long term. Starbucks
entered India in October 2012 and plans to grow its business aggressively, expand stores, make
investments, and offer locally relevant innovations. Currently, its stores operate under an equal
joint venture (JV) partnership with Tata Global Beverages called Tata Starbucks Ltd

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.

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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
(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)