Consumer Durables Sector Reports - 210119

Emkay
India Equity Research | Consumer Durable

January 21, 2019 ©
Sector Report
Consumer Durables Your success is our success
Refer to important disclosures at the end of this report This report is solely produced by Emkay Global. The following person(s)
are responsible for the production of the recommendation:
Naval Seth <naval.seth@emkayglobal.com>

Penetration & Premiumization to lift-off Growth +91 22 6624 2414
Aakash Fadia <aakash.fadia@emkayglobal.com>

+91 22 6612 1241
1
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Indian consumer durables – Penetration & Premiumization to lift-off Growth
 Consumer durables on a persistent growth path: An enduring confluence of macro and demographic factors are likely to
power a healthy 12% CAGR in the Indian consumer durable industry over the next five years. Rising income levels, growing
aspirational middle class, rapid urbanization, and improving affordability are likely to drive better penetration and
premiumization-led growth. The increasing proclivity of households to use leverage and the easy availability of consumer
finance, along with investments by players to enhance distribution reach beyond the major cities, are proving to be major
enablers of growth on the demand and supply sides. This favorable backdrop provides a fertile ground for consumer
segments including durables and consumer electricals.
 Public spending for rural upliftment is a booster: Favorable policy environment underpinned by the government’s
aggressive rural spending, push for affordable housing for all, rural electrification programs, GST rate reduction in most
product categories, and EESL-led reduction in LED product prices augur well for deepening the market penetration.
 Premiumization powered mainly by replacement demand to be a major growth driver: Categories such as
Refrigerator, Fans, and Washing Machines should continue to see premiumization, while TV has been experiencing a
significant price erosion, offsetting the positive impact from premiumization. But we note that large-screen sales have been
on an uptrend. The AC market should see marginally better value growth with the continued shift toward invertor ACs.
 Better returns will command superior valuations; phase of re-rating is over: The consumer durables space has seen
a significant valuation uplift over the past 3-4 years; recent corrections have led to reasonable valuations now for selected
names, and therefore provide attractive investment opportunities. However, there is limited room for a major multiple
expansion in general. We believe, going forward, superior valuations will be accorded to companies that can drive: a) higher
market share through the use of technology, branding, newer products, and distribution reach expansion; and b)
simultaneous delivery of strong cash flows and return ratios.
 We are initiating coverage on AMBER (BUY- TP- Rs1126), Dixon (BUY- TP- Rs2683) and Crompton Consumers
(ACCUMULATE- TP- Rs256), REDUCE on Whirlpool (TP- Rs1293) and V-Guard (TP- Rs187). We downgrade our
rating on Havell to HOLD (TP – Rs705) due to recent outperformance and limited scope of multiple re-rating.
Havells, along with V-Guard, leads the way in product launches, technological upgrades, market strategies, as well
as distribution reach, while others are playing the catch-up game.
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Table of Contents
Contents Page No. Contents Page No.

Indian consumer durables – Penetration & Premiumization to lift-off Growth 2
Categories - Penetration and Premiumization on rise 53
Financial snapshot 4
Air Conditioners: Lowest penetrated category to grow at healthy… 54
Industry landscape − Strong demand with favorable macro factors 5
Refrigerator − Healthy growth rate to sustain with premiumization 58
Consumer Durables and Electricals − Long-term growth drivers 6
Sustained penetration growth to drive revenues 7 Washing Machines − One of the lowest-penetrated categories 61
Macro growth drivers favoring strong long-term demand trend 10 Television − Well-penetrated and highly competitive category; 64
Rural electrification and increase in supply time on rise 22
Lighting- Highly penetrated and competitive category, replacement … 67
Premiumization trend clearly visible and will continue 24
Wires and Cables − Increase in power availability, housing demand … 71
Replacement demand is another volume and premiumization driver 26
Recovery in real estate 27 Fans – Well-penetrated and competitive category, replacement.. 76
Government’s vision of affordable housing progressing slowly 29 Pumps − Demand linked to real estate development and monsoons 80
Energy Efficiency Services Limited − Driving fast-paced LED growth 30
Companies:
Industry- Companies moving in the right direction to drive demand 32
Amber Enterprises – (Initiating Coverage) 83
Competitive intensity likely to remain high 33
Reduction in GST rates ─ Structural positive for most categories 36 Crompton Greaves Consumer Electricals – (Initiating Coverage) 91
Distribution reach one of the key catalyst in driving penetration 38 Dixon Technologies (India) – (Initiating Coverage) 100
Technology advancement to improve efficiency 39 Havells India – (Company Update) 112

Rising cost of Chinese imports to benefit Indian contract manufacturers 41
V-Guard Industries – (Initiating Coverage) 122
Indian Contract manufacturers − Growth opportunities visible 43
Whirlpool of India – (Initiating Coverage) 131
Earnings sustainability key for sustained Premium Valuations 47
Key risks: 51 Annexure: 141

Earnings at Risk
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Financial snapshot
Consumer Sales (Rs mn) EBITDA (Rs mn) EBITDA % PAT (Rs mn)
CMP TP Rating
Electricals/Durables FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
Crompton Greaves
229 256 Accum 40,797 45,138 51,716 58,221 5,310 5,930 7,033 7,918 13.0 13.1 13.6 13.6 3,238 3,734 4,600 5,341
Consumer Electricals
Havells India 678 705 Hold 81,386 98,771 1,14,843 1,31,833 10,493 12,434 15,617 18,544 12.9 12.6 13.6 14.1 7,125 8,246 10,472 12,657
V-Guard Industries 207 187 Reduce 23,257 25,877 29,515 33,600 1,904 2,413 2,885 3,435 8.2 9.3 9.8 10.2 1,351 1,693 2,080 2,530
Whirlpool of India 1,460 1,293 Reduce 48,319 55,101 62,524 70,458 5,600 6,540 7,609 8,433 11.6 11.9 12.2 12.0 3,507 3,958 4,730 5,427
Contract
Manufacturers
Amber Enterprises 888 1,126 Buy 21,281 26,132 31,545 35,630 1,835 2,049 2,537 2,955 8.6 7.8 8.0 8.3 623 927 1,345 1,733
Dixon Technologies 2,180 2,683 Buy 28,416 30,897 38,549 44,566 1,127 1,332 1,700 2,055 4.0 4.3 4.4 4.6 609 645 805 1,010
EPS (Rs) P/E (x) EV/EBITDA (x) RoE (%) RoCE (x)
Consumer
Electricals/Durables
FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
Crompton Greaves
5.2 6.0 7.3 8.5 44.4 38.5 31.2 26.9 28.1 24.7 20.4 17.7 41.0 36.2 34.5 31.8 34.3 33.1 33.6 32.3
consumer Electricals
Havells India 11.4 13.2 16.8 20.2 59.4 51.4 40.4 33.5 40.2 33.9 26.7 22.2 19.1 19.6 21.7 23.1 22.3 23.6 26.6 28.3
V-Guard Industries 3.2 4.0 4.9 5.9 65.2 52.0 42.3 34.8 46.3 36.2 30.0 24.9 18.0 19.3 20.2 20.8 22.3 24.5 25.1 25.5
Whirlpool of India 27.6 31.2 37.3 42.8 52.9 46.9 39.2 34.2 31.3 26.3 22.1 19.2 19.5 18.5 18.5 17.9 23.4 23.0 22.6 21.4
Contract
Manufacturers
Dixon Technologies 53.8 56.9 71.1 89.2 40.5 38.3 30.7 24.5 21.9 19.1 15.1 12.4 19.3 17.1 17.8 18.5 29.1 28.9 31.1 31.4
Amber Enterprises 29.5 42.8 55.1 60.4 44.8 30.1 20.8 16.1 15.1 13.5 10.6 8.8 7.0 9.4 12.0 13.4 13.3 13.8 16.2 17.1

Earnings at Risk
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Industry landscape − Strong demand with favorable macro factors

Earnings at Risk
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Consumer Durables and Electricals − Long-term growth drivers
 Easy availability of finance, rising urbanization, increasing per capita income, and changing consumer preferences
 Reduction in GST rates along with rise in competition leading to price increase restriction in major categories
Consumption
 Consumption is the biggest growth driver: given the India growth story coupled with low per capita consumption, as
well as a rise in working population
 Sustained government capex spends and residential real-estate recovery, electrification, and improvement in the
quality of power supply
 In India, all categories, except TV, are fairly under-penetrated

Penetration  Widening rural reach and increased availability of financing options beyond metros and urban towns
 Penetration remains a pivotal factor in long-term sustainable growth of the durables sector
 Rural electrification program and improved electricity supply
Government's rural focus
 Government's elevated spends for rural development
 Replacement demand for TVs, Refrigerators, and Washing Machines clearly showing trends of premiumization
Premiumization  Rising incomes, changing preferences of middle class, and companies’ focus on technology and innovation
 Technological advancement is shortening replacement cycle
 Product quality, after-sales services, rising rural penetration, narrowing of price gap (with lower GST) should continue
to drive increased contribution from organized players
Unorganized to Organized
 The contribution of organized sector, including various categories, has reached over 50%
 Many categories still face intense competition from unorganized players in regional markets
Distribution expansion  Increasing number of large format stores/MBOs in Tier I and Tier II towns along with rural expansion
 Robust growth from non-metros with the availability of financing schemes
E-tailing
(Future trends will depend on  Rising data penetration and huge discounts have been enticing consumers to buy online
new policy implementation)
 Product return policies; extended warranty periods; and after-sales services remain similar to offered by offline retailers

Earnings at Risk
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Sustained penetration growth to drive revenues
CAGR Industry Size Household Penetration
Category Key Players
FY11-18 FY18-23E FY18 FY23E FY18 FY23
Air-conditioner
Volume (mn Units) 8.3% 10.5% 5.5 9.1
12% 22% Voltas, LG, Lloyds, Hitachi, Daikin, Bluestar
Value (Rs Bn) 11.1% 11.2% 138 234
Washing Machine
Volume (mn Units) 7.7% 9.6% 6.3 10
15% 28% LG, Samsung, Whirlpool, Godrej, IFB
Value (Rs Bn) 14.9% 14.2% 104 202
Refrigerator
Volume (mn Units) 7.8% 10.4% 13.4 22.1
35% 60% LG, Samsung, Whirlpool, Godrej, Haier
Value (Rs Bn) 14.2% 16.0% 245 514
Television
Volume (mn Units) 0.8% 4.4% 13.7 15.7
45% 62% Samsung, LG, Sony, Panasonic
Value (Rs Bn) 9.5% 4.4% 258 320
Air-cooler
Volume (mn Units) 9.7% 10.2% 9.5 15.4
22% 40% Symphony, Kenstar, Bajaj, Voltas, Orient
Value (Rs Bn) 15.9% 16.9% 42 91
Source: Industry, Emkay Research
% household with multiple Our estimates for Penetration as per

Product FY18E Households (mn) Replacement Years
products penetration Industry
Television 5% 10 45% 65%
Refrigerator NA 12 35% 20%
Washing machine 297 NA 11 15% 10%
RAC 5% 10 12% 7%
Air cooler 5% 10 22% 17%

Source: Industry, Emkay Research. Category Penetration assumptions are ours and could be different from industry estimates
7

Earnings at Risk
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Sustained penetration growth expected going forward
% household with multiple

Product FY23E Households (mn) Replacement Years Our estimates for penetration
products
Television 5% 8 62%
Refrigerator NA 10 60%
Washing machine 311 NA 10 28%
RAC 5% 8 22%
Air cooler 5% 8 40%
Source: Emkay Research
….expect healthy growth in electricals as well

Industry Size (Rs Bn) CAGR
Category Key Players
FY18 FY23E FY15-18 FY18-23E
Fans 80 121 6.1% 8.6% Crompton, Havells, Usha, Orient, Bajaj
Lighting 220 415 6.5% 13.6% Philips, Bajaj, Havells, Osram, Syska
Cables and Wires 525 1033 8.3% 14.5% Polycab, Finolex Cables, Havells, KEI, RR Kabel
Domestic Switches 40 62 7.7% 9.2% Havells, Anchor, Legrand
Domestic Switchgears 183 285 8.3% 9.3% Havells, Legrand, Schneider
Water Heater 18 30 11.5% 10.4% Havells, V Guard, Crompton, Racold
Stabilizers 13 13 1.4% 0.8% V-Guard, Godrej, Servo, Vitronics, Everest
Motor Pumps 100 128 NA 5.0% Kirloskar, Crompton, Havells, KSB pumps, V-Guard
UPS + Digital UPS 57 64 -10.6% 2.4% V-Guard, iBall, Intex, Luminous

8

Earnings at Risk
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Product portfolio of large players
Bajaj
Electricals Havells Crompton V-Guard Orient Usha Polycab Philips
Electricals
Fans P P P P P P P ×
Cables and Wires P × P × × × P ×
Switches P × P × × × P ×
Switchgear P × P P × × P ×
Lighting P P × P × P P P
Motor Pumps P P P × P × P ×
UPS and Stabiliser × × P × × × × ×
Water Heater P P P P P P × ×
Air Coolers P P P P P P × ×
Kitchen Appliances P P P P P P × P
Personal Grooming P × × × × × × P
Home Essentials P × × P P P × P
Durables Havells Lloyd LG Samsung Whirlpool IFB Godrej
Air Conditioner P P P P P P
Washing Machine P P P P P P
Refrigerator × P P P × P
TV P P P × × ×
Source: Company, Emkay Research
9

Earnings at Risk
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Macro growth drivers favoring strong long-term demand trend
 Indian Consumer durables will continue to see an uptrend in the medium- to long term, driven by both macro and industry
factors like low product penetration levels, increased ease in the availability of finance, premiumization in metros and urban
towns, intense competition restricting price inflation for consumers, growing middle class, rising per capita incomes with
sustained economic growth, and increasing distribution reach by companies beyond key cities. In addition, the government’s
push for housing for all, increasing availability of electricity, and GST rate reduction on most consumer products augur well
for long-term growth. We expect the consumer durables and electrical industry to record 12% growth over FY18-23E to reach
revenues of Rs1,360bn and Rs2,276bn, respectively.
Per capita income, in PPP terms, has recorded 7.3% CAGR in 1996-
India’s middle-class population saw a 10.3% CAGR in 2005-2012
2016
900 7500
800
6500
700
600 5500
(million)
500
4500
(USD)
400
300 3500
200 2500
100
0 1500
Poor Lower-middle Middle-middle Upper-middle Affluent
500
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2004-05 2011-12
Source: Mint article, Emkay Research Source: World bank, Emkay Research
10
Earnings at Risk
Emkay
Earnings at Risk
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Macro drivers – Economic growth and rising incomes to spur demand
Household savings saw 11% CAGR in FY08-16 Household disposable income increased at 11% CAGR in FY12-16
28000 120,000,000 14%
26000 12%
100,000,000
24000 10%
22000 80,000,000 8%
(Rs)
(Rs bn)
20000
60,000,000 6%
18000
4%
16000 40,000,000
2%
14000
20,000,000 0%
12000 2011-12 2012-13 2013-14 2014-15 2015-16
10000
2008 2009 2010 2011 2012 2013 2014 2015 2016 Household disposable income yoy
Source: CMIE, Emkay Research Source: CMIE, Emkay Research
Per capita gross disposable income is estimated to record 7% CAGR

Average GDP growth is estimated to be ~7.3% in FY18-22E
in FY18-25E
4000 7.6% 3500
3500 7.4%
3000
3000 7.2%
(USD billion)
2500 7.0% 2500

(USD)
2000 6.8% 2000
1500 6.6%
1500
1000 6.4%
500 6.2% 1000

2017 2018 2019E 2020E 2021E 2022E
500
GDP at constant prices yoy 2016 2017 2018 2019E 2020E 2022E 2025E
Source: World bank, Emkay Research Source: Stovekraft DRHP, Emkay Research
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Earnings at Risk
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Structural rise in household leverage
Household-debt-to-GDP in India has been growing, while it is still far behind other developing economies like China, Brazil, and
Indonesia. With growth in overall income, debt-to-GDP will continue to rise as consumer spending is expected to remain high
with changing lifestyle needs.
Household income saw 11% CAGR in FY12-16 Gross savings rate is on a declining trend as spending is on rise
450,000 14% 35
33.8
12% 34
33.1
350,000 10% 33
8% 32 31.4 31.6
(Rs)
250,000 30.7
6% 31
(%)
4% 30 29.6
150,000
2% 29
50,000 0% 28
2011-12 2012-13 2013-14 2014-15 2015-16
27
Household Income YoY 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Source: CMIE, Emkay Research Source: CMIE, Emkay Research
Household debt witnessed 10% CAGR in FY10-17 India’s household debt as % of GDP is lowest among peers
90% 84.2%
2017 233018 78.1%
80%
2016 204683 66.2%
70%
2015 187131 60% 48.9%
2014 50% 44.4%
168332
2013 160305 40%
30% 25.1%
2012 156764 10.2% 10.9% 14.3%
20% 9.7% 11.3%
2011 147319 7.7%
10%
2010 117998 0%
0 50000 100000 150000 200000 250000 India China Russia Thailand Malasiya Brazil
2006 2017
Rs
Source: CMIE, Emkay Research Source: CEIC, Emkay Research 12

Earnings at Risk
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Easy availability of finance and structural rise in household leverage
 Indian consumers’ spending on Durables and Electricals is expected to stay in the high-growth trajectory, driven by:
1) easy availability of financing/EMI schemes and increasing financing reach; 2) higher availability of products in
rural India with rising distribution reach of companies; 3) launch of mass variant products at affordable prices; 4)
fast-paced acceptance of e-commerce; and 5) shortening replacement cycles and new product launches in a
reduced time span.
 Increasing availability of finance and rising leverage: India is seeing rising demand for consumer discretionary amid
easily available finance options. The ‘New India’ does not have the ‘No Loan’ mind-set of the last 1-2 generations. The
changing mind-set to improve lifestyle and higher spends on consumption/discretionary/durables augur well for sustained
growth in the medium- to long term. This is underscored by the fact that in big cities ~50% of the sales of large modern retail
outlets (MBOs) happen on financing schemes. This consumption pattern is picking up pace in Tier II and Tier III cities as
financing companies are increasing their penetration. India’s largest consumer finance company (Bajaj Finance) has been
seeing a 40% increase in advances for consumer durables. Bank advances for consumer durables stood at Rs2,187bn in
FY18 vs. Rs1,128bn in FY12. Financing of Maruti cars has been rising and is expected to continue and can be seen in other
discretionary spends as well.
India’s largest consumer finance company has seen a 40% CAGR

% of Maruti’s cars financed has been rising
increase in consumer durable advances in FY12-18
82 81 400 60%
80
80 350 50%
77 300
78 40%
250
(Rs mn)
76 75
74 200 30%
(%)
74 150
72 20%
72 100
50 10%
70
0 0%
68 FY12 FY13 FY14 FY15 FY16 FY17 FY18
66
FY13 FY14 FY15 FY16 FY17 FY18 Advances to Consumer Durables Growth
Source: Industry, Emkay Research Source: Bajaj Finance, Emkay Research 13

Earnings at Risk
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Easy availability of finance and structural rise in household leverage
Banks’ advances to consumer durables saw 12% CAGR in FY12-18 Consumer durables customer acquisition by Bajaj Finance
2600 50% 1,600,000 70.0%

1,400,000 60.0%
40%
2100 1,200,000 50.0%
30%
(Nos)
1,000,000 40.0%
1600 20%
(Rs mn)
800,000 30.0%
10%
600,000 20.0%
1100 0%
400,000 10.0%
-10% 200,000 0.0%
600
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
-20%
100 -30%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Advances to Consumer Durables Growth New to Bajaj cust. acquired during qtr (Nos.) yoy
Source: RBI, Emkay Research Source: Bajaj Finance, Emkay Research
Our interactions with various distributors and dealers suggest that rural demand for durables has been growing in double digits,
driven by 1) rising availability of finance/EMI schemes; and 2) dealer network expansion. There is still huge untapped demand,
which can be addressed with continued expansion by the financing companies. Sustained penetration growth by established
players will make survival tough for fringe players across the categories. Fresh demand from large cities can no more sustain
healthy growth rate due to the already high base.
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Earnings at Risk
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Easy availability of finance and rise in per capita income to increase penetration
 Category penetration in India is low vs. other emerging markets, but it is expected to improve with the rise in per capita
income and changing consumer behavior. Global trends suggest that country which reach/surpasses USD2,000 in per capita
income sees disproportionate spends on discretionary. India’s per capita GDP is expected to cross USD2,000 by FY19. We
believe that India will catch up to other emerging markets in terms of spending. Sustained GDP growth is key to higher
spends on consumer durables, electricals, and appliances. Looking at the penetration of two- and four wheelers, we believe
that consumer durables could also see exponential growth in the medium- to long term, driven by macro factors. As per
estimates, higher penetration increase would be seen in Refrigerators, Washing Machines, Air Conditioners, and Small
Appliances in the same pecking order. Rising temperatures and the convenience factor, as well as low maintenance costs
and long product life have been favorable for Refrigerators, helping it to become the highest volume selling category.
Refrigerator is also the only category with highest value growth in the past 10 years and is expected to continue going
forward. Less competition and replacement demand are driving premiumization.
Two-wheeler household penetration Four-wheeler household penetration

60% 11%
48.5% 9.8%
10%
50% 9.3%
44.6%
41.7%
38.7% 9%
40% 8.3%
35.8%
7.8%
8%
7.4%
30%
7%
20%
6%
10% 5%
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
Source: SIAM, Emkay Research Source: SIAM, Emkay Research
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Earnings at Risk
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Sustained economic growth to increase penetration
Industry estimates; Consumer durable penetration vs. global peers Our calculations; Refrigerator to see highest increase in penetration
100% 89% 65%
85% 62% 60%
90%
80% 70% 55%
70% 65% 45%
45% 40%
60%
35%
50% 35%
28%
40% 30%
25% 25% 22% 22%
30% 20% 17% 15%
20% 10% 12%
7% 15%
10%
0% 5%
Room AC Refrigerator Washing Television Air cooler Television Refrigerator Washing RAC Air cooler
Machine machine
India Global FY18 FY23E
Source: Industry, Emkay Research Source: Industry, Emkay Research
Growth Opportunity
Current Household Cost of running the
Product Starting price (Rs)
penetration product
New Demand Replacement Demand
Two wheeler 38,000 49% High Moderate Moderate
Television 13,000 45% Low Moderate High
Refrigerator 12,000 35% Low High High
Washing machine 10,000 15% Low High High
RAC 20,000 12% High High High
Source: Company websites, Channel checks, Industry, Emkay Research
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Earnings at Risk
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Rise in per capita to boost demand for discretionary, akin to global trends
India’s GDP per capita is less than half of emerging economies India’s GDP per capita is estimated to see 8.6% CAGR in FY18-23E
18000 3500
16000
14000 3000
12000
10000 2500
(USD)
(USD)
8000
6000 2000
4000
1500
2000
0
1000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
500
Brazil China India Russia Emerging Economies 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: World bank, Emkay Research Source: IMF, Emkay Research
India is expected to reach per capita of GDP of USD4,000 by FY30E
16
14
11 11
9
Years
8 8
6
5
4
China Brazil India Indonesia Thailand
Per capita GDP from USD (1000-2000) Per capita GDP from USD (2000-4000)
Source: IMF, Emkay Research

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Earnings at Risk
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Rise in household incomes key to higher discretionary spends
 Household income is rising steadily and recorded 11% CAGR in FY12-16. Further, household debt-to-GDP in India
has been rising while it is still meaningfully lower than other emerging peers. It has increased from 9.7% in FY06 to
11.4% in FY18 despite increased vigilance over the consumer financing data by CIBIL to identify the credit history of
the perspective buyers.
 The majority of the Indian population (41%) is in the age bracket of 25-54 years and 18% is in the age bracket of 15-24 years.
This, along with rising participation of women in the workforce, should add to total household income and should drive higher
spends on durables and demand for premium products. India has highest percentage of Millennials, at 440mn, making up
47% of the world’s millennial population and they are expected to spend $330bn annually, by 2020. India is expected to
become the youngest country by 2020, with an average age of 29. Driven by a sustained improvement in purchasing
power, the India growth story looks promising in the foreseeable future.
Source: livemint
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Earnings at Risk
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Continued urbanization to aid growth
Growth in young urban consumers and nuclear families: 47% of the population in India is under the age of 25 and the
country is slated to become the youngest country by 2020. Further, rising urbanization (27% at the beginning of the century to
32% in 2015) and increase in female participation in the workforce are also creating time-starved consumers who are likely to
pay for convenience. Nuclear families are also increasing, with 70% households with a nuclear construct, up 13% over the past
two decades – and nuclear families spend 20-30% higher than joint families.
62% of Urban population is estimated to be below 35 years of age by 2022
500
33
450 29 29
27 36 38
35
400 33 53
49 49
350 46
(million)
64 63 68
300 60
250
120 119 124
112
200
150
100 162 174 172 172
50
2017 2018 2022E 2025E
0-14 years 15-34 years 35-44 years 45-54 years 55-64 years >=65 years
Source: Stovekraft DRHP, Emkay Research
19

Earnings at Risk
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India is being urbanized at a fast pace
There has been a drastic increase in urban towns and cities in the country over the past five years. Almost 10mn people migrate
to cities and towns every year. The urban population as a percentage of India’s total population is estimated to increase from the
current 32.8% (2017) to 35% by 2020, in turn driving greater exposure to modern amenities.
Rate of Urbanization in India: 2017-2025
Source: Stovek DRHP, Emkay Research

20

Earnings at Risk
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Average age profiles of Indians also favor sustained long-term growth
41% of population in working age bracket of 25-54 years India population trends
45% 41%
40%
35%
29%
30%
25%
20% 18%
15%
10% 7% 6%
5%
0%
0-14 15-24 25-54 55-64 65 +
Source: Industry, Emkay Research Source: Stovekraft DRHP, Emkay Research
Increasing proportion of working population and younger age group in India is expected to intensify the use of
technology. According to industry estimates, India is expected to become the 5th largest consumer durables market in
the world by 2025 from its 12th position currently.
Source: Stovekraft DRHP, Emkay Research

21

Earnings at Risk
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Rural electrification and increase in supply time on rise
The government’s ambitious target of electrifying every household in the country under the Saubhagya scheme has achieved
99.7% electrification by Dec’18 and soon will reach 100% electrification as it is electrifying 7 lakh homes per week currently.
Deen Dayal Upadhyay Gram Jyoti Yojana brought power to all 6 lakh census villages, and now with Saubhagya scheme, power
will reach 40mn households in those villages. Rural electrification should drive demand for cables and wires, and fans. Increased
supply of electricity and rise in disposable income over the years to come should probably improve the purchasing power and
result in demand for other basic appliances. In addition, increased power supply in key states such as UP has been driving
demand for electricals and appliances and is expected to continue in the medium term as the current government is aggressively
pushing for better electricity supply across the states. The government’s focus on rural electrification under the Deendayal
Upadhyaya Gram Jyoti Yojana (DDUGJY) has a total investment target of Rs756bn in FY14-19E.
State Hrs of Electricity supplied in day State Hrs of Electricity supplied in day
Andhra Pradesh 23.9 Maharashtra 23.3
Arunachal Pradesh 14.3 Manipur 21.5
Assam 18.3 Meghalaya 21.5
Bihar 17.4 Mizoram 13.0
Chhattisgarh 23.0 Nagaland 19.0
Delhi 24.0 Orissa 20.9
Goa NA Punjab 24.0
Gujarat 24.0 Rajasthan 22.0
Haryana 13.6 Sikkim NA
Himachal Pradesh 24.0 Tamil Nadu 24.0
Jammu & Kashmir 14.8 Telangana 24.0
Jharkhand 15.5 Tripura 23.5
Karnataka 17.1 Uttar Pradesh 17.4
Kerala 23.0 Uttrakhand 23.5
Madhya Pradesh 22.9 West Bengal 24.0
Source: Ministry of Power, Emkay Research
22

Earnings at Risk
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Electrified households and supply improving across India
~99% of Households have access to electricity ~18 hours of electricity is supplied on an average to rural households
Households connected to Electricity Electricity supply (hrs/day)

100%
25
90% 21.3
20.6
80% 21 19.2
17.8 18.1
70% 16.6
17
(Hours)
60%
50% 13
40%
9
30%
20% 5
2001 2011 2014 2018 Rural Urban All India
Rural Urban Peak Summer months Other Months
Source: Government, Emkay Research Source: Ministry of Power, Emkay Research
23

Earnings at Risk
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Premiumization trend clearly visible and will continue
Value growth across consumer durable categories has been higher than volume growth during FY11-18, clearly indicating the
premiumization trend in both new purchases and replacement demand. Value growth across the categories is 3-9% higher than
volume growth. It has also been seen in Fans, for which value growth was 9%, while volume growth was 5% over FY11-18. In
the last decade, a similar trend has been reflected in the Auto sector wherein 2W value growth was ~15%, while volume growth
was ~11%. In case of Four wheelers, value growth was ~5% higher than volume growth of 8% over the same period. The trend
clearly shows consumers’ willingness to upgrade to better product despite higher spending. Within consumer durables and
electricals categories like Refrigerators, Washing Machines, TV, AC and premium fans have seen superior value growth over
FY11-18. Going forward, we believe that Refrigerators, Fans and Fully Automatic Washing Machines will see higher value growth
while other categories are expected to see higher competitive intensity and price erosion. Overall, we strongly believe that
premiumization will continue and will benefit from higher replacement volumes.
Passenger Vehicles FY13-18 FY08-18 Air conditioner FY11-18 FY18-23E

Volume 4.2% 8.0% Volume 8.3% 10.5%
Value 6.5% 12.6% Value 11.1% 11.2%
2 Wheelers Washing Machine
Volume 10.8% 7.9% Volume 7.7% 9.6%
Value 11.2% 14.9% Value 14.9% 14.2%
Refrigerator
Volume 7.8% 10.4%
Value 14.2% 16.0%
Television
Volume 0.8% 4.4%
Value 9.5% 4.4%
Fans
Volume 5.4% 5.0%
Value 8.6% 8.6%
24

Earnings at Risk
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Premiumization clearly visible across categories
TVs also moving the same direction of Washing Machine with rising
Rising proportion of Fully Automatic Washing Machines
demand for bigger screens
Fully Automatic Volume Value
110% 100%
22% 28%
90% 32%
17% 42% 57% 71% 80%
70%
60%
50% 16% 40% 55% 69% 78% 72% 68%
40%
30%
15% 37% 52% 68%
10% 20%
North East West South FY16 FY17 FY18
FY16 FY17 FY18 Small Screen Big Screen
Source: Industry, Emkay Research Source: Industry, Emkay Research Note: Small screen size is up to 32 inches, Big screen
size is above 32 inches
Refrigerator continues to see growth equally strong volume in both … and value growth is also in both categories, can be attributable to
Direct Cool and Frost Free lower competition
Refrigerator Volume Refrigerator Value
100% 100%
22% 21% 22%
80% 80% 36% 36% 36%
60% 60%
78% 79% 78%

40% 64% 64% 64%
40%
20% 20%
FY16 FY17 FY18 FY16 FY17 FY18
Direct cool Frost Free Direct cool Frost Free
Source: Industry, Emkay Research Source: Industry, Emkay Research 25

Earnings at Risk
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Replacement demand is another volume and premiumization driver
Over the past few years, demand for both durables and electronics products has increased at a decent pace, auguring well as it would
percolate into replacement demand on a sustained basis going forward. In addition, the replacement cycle across products have started to
come down with fast-paced technological changes. In our future calculations, we have assumed ~8-10 years of replacement cycle across
durables. This translates into ~30-55% of incremental volumes coming from replacement demand across categories. Sustained brand
positioning, distribution expansion, and after-sales services will become more crucial as replacement buyers would look to get better
experience compared with existing affiliation with a particular brand. Brand pull and satisfaction plays a key role in replacement and also
drives premiumization. We have detailed our assumptions across various categories in the charts below.
Washing Machine volumes to see 9.1% CAGR in FY19E-23E Refrigerator volumes to see 10.1% CAGR in FY19E-23E
12 27
10 22
(mn units)
(mn units)
8 17
6 12
4 7
2 2
FY19E FY20E FY21E FY22E FY23E FY19E FY20E FY21E FY22E FY23E
Replacement Demand Fresh Demand Total Volume Replacement Demand Fresh Demand Total Volume
Source: Emkay Research Source: Emkay Research
Television volumes to see 2.9% CAGR in FY19E-23E Air Conditioner volumes to see 11.9% CAGR in FY19E-23E
20 10
8
(mn units)
15
6
10
(mn units)
4
5 2
0 0
FY19E FY20E FY21E FY22E FY23E FY19E FY20E FY21E FY22E FY23E
Fresh Demand Replacement Demand Total Volume Replacement demand Fresh Demand Total Volume
Source: Emkay Research Source: Emkay Research 26

Earnings at Risk
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Recovery in real estate
If India sustains 7-8% economic growth over the next few years, it will augur well for the sustained growth in consumption. In
addition, the government’s push for housing for all should drive growth further with demand for cables, wires, other electricals
and durables. Although we know that government projects see delays while incremental progress should certainly add to the
demand. The real estate pick-up is also indicative of real demand, including office, retail, residential, student housing or
warehousing. New users of office spaces (non-IT players and co-working) should gain strength. The slow implementation of
RERA by states and the challenge of slow equity investments in residential markets remain the key concerns.
Office space completion and absorption Retail space completion and absorption
90 60% 18
54%
80 50%
16
40%
36.6
70
14
37.3
30%
35.3
22%
33.6
60
(mn sq ft)
33.5
20% 12 6.7
26.8
50
29.9
26.8
(mn sq ft)
31% 10%
28.7
40 10
3% 0%
-2% 8 5.1
30 -9% -10% 4.7
5.2
20 36.7 38.5 41.5 40.8 42 -20% 6 4.5
30 -20% 34.9 -23% 3.3
29.4 26.9
10 -30% 4 8.8
0 -40% 5.7 3.2 4.6 5.2
2 4.1 1.6 3.6
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2.7
1.3 0.8
0 -0.3
New completion Net Absorbtion 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
-2
New completion YoY Net Absorbtion YoY New completion Net Absorbtion
Source: JLL FICCI report, Emkay Research Source: JLL FICCI report, Emkay Research
As per Knight Frank, housing sales increased 6% in CY2018 in eight major cities as developers reduced prices and offered
discounts. Sale of residential units increased in six cities i.e. Delhi-NCR, Mumbai, Bengaluru, Chennai, Hyderabad and
Ahmedabad but declined in Kolkata and Pune. Higher sales volumes resulted 11% decline in the number of unsold units to
~0.47mn units.
27

Earnings at Risk
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Recovery in residential demand to support growth
 After the slump in 2017, the real estate sector has seen some revival in both supply and absorption in the residential
segment. However, the NBFC liquidity crunch from Sept’18 might hit the smaller players in the real-estate sector. Easing of
liquidity is essential along with sustained healthy GDP growth for recovery in the real-estate sector. In medium- to long term,
we expect the demand for housing to sustain and affordable housing project by the government to also entail demand for
electricals and durables in the medium term. However, the recent liquidity crunch and RERA implementation could
impact new constructions, if liquidity issues sustains for a longer period then, growth in categories Switchgear,
Cable & Wires and Lighting will be impacted in the foreseeable future.
 Residential: The residential markets is slowly witnessing a revival, after the slowdown over the last 3-4 years due to the
uncertainty regarding the implications of RERA and GST. The government’s policy push for affordable housing is helping this
segment gain traction and developers across the country are showing interest.
 Commercial and Retail: Office absorption is likely to see sustained growth in the medium term. Healthy pre-commitments of
space in under-construction projects during the period 2018-20 should support growth. The vacancy rate is estimated to
remain <15% on a pan-India basis. Quality mall space is seeing healthy absorption. The net absorption of retail space is
expected increase over 2018-20, on better-quality supply.
Residential units supply and absorption Housing sales surge 6% in 8 major cities
300000 60%
250000 40%
20%
(Units)
200000
0%
150000
-20%
100000 -40%
50000 -60%
2012 2013 2014 2015 2016 2017 1H2018
Supply Absorbtion Supply YoY Absorbtion YoY
Source: JLL FICCI report, Emkay Research Source: Financial Express, Knight Frank, Emkay Research 28

Earnings at Risk
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Government’s vision of affordable housing progressing slowly
 Apart from electricity for all, affordable housing is also the focus areas of the government. Pradhan Mantri Awas Yojana –
Housing for All scheme was launched in 2015, under which government will provide incentives for economically weaker
sections and lower-income groups for house construction. The Union Ministry of Housing & Urban Affairs has approved the
construction of 1.5 lakh affordable houses under PMAY (Urban). It approved an investment of Rs72.3bn with Central
assistance of Rs22.1bn.
 The government aims to sanction 7.5mn houses and construct 3mn of them by FY19-end. Although 6.3mn houses had been
sanctioned, only 1.2mn have been constructed, while 2.3mn are under construction. Among states, Andhra Pradesh, Uttar
Pradesh, Maharashtra, Madhya Pradesh, and Tamil Nadu together accounted for 55% share of the sanctions, while North
Eastern states contributed only 4% share of overall sanctions. Only 19% of houses sanctioned under the Pradhan Mantri
Awas Yojana (Urban) have been completed over the last four years. A total of 10mn houses for the urban poor are planned to
be constructed by 2022 under the ambitious housing scheme’s sanctioned work. Progress and execution are key for demand
in electricals.
Central government funding towards PMAY-U Scheme Government has sanctioned 6.3mn houses till November 18
1200 12 Cumilative Houses Sanctioned
1000 10
10
800
(Rs bn)
8
600 (mn units) 6.3
6
400 4.4
200 4
1.7
0 2
FY16 FY17 FY18 FY19B FY20-22P
0
Budget Outlay Extra budgetary resource FY16 FY17 Nov-18 Dec-20
Source: Crisil report, Emkay Research Note: FY20-22p is cumulative funding for 3 years Source: Crisil Report, Emkay Research
29

Earnings at Risk
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Energy Efficiency Services Limited (EESL) − Driving fast-paced LED growth
 The government has been taking various initiatives for energy conservation and promoting energy-efficient appliances
through programs like 1) Unnat Jyoti by Affordable LEDs for All (UJALA) to promote efficient lighting; 2) Street Light National
Programme (SLNP) to replace street lights with energy efficient lighting; 3) National Energy Efficiency Fans Program
(NEEFP) to promote energy efficient fans; and 4) Super-Efficient Equipment Programme (SEEP) to push efficient appliances
by providing finance. EESL is working with manufacturers to bring super-energy-efficient air conditioning technologies to the
market under its EESL Super-Efficient Air Conditioning Programme (ESEAP). EESL has deployed its Super Energy Efficient
ACs to institutional buyers at the same cost as those available in the market, in a move that will cut electricity bill by
~Rs12,000 (USD1,719) per annum with wattage at 1000W, and emissions by 1000kgs a year. As part of the Paris
agreement, the government has committed to reduce emission intensity by 33-35% by 2030 from 2005 levels.
 EESL has distributed over 280mn LED bulbs, 439mn LED tube lights and 1.43mn BEE 5-Star energy efficient fans across
India. Over the last 12-15 months, the government has announced various energy saving schemes to deploy LED lighting and
it has been aiding sector growth. The schemes include Domestic Efficient Lighting Programme (DELP), Street Light National
Programme (SLNP), and increasing awareness drives for LED lighting. These schemes had also significantly reduced the
MRP of LED bulbs over the last four years. Under the DELP scheme in 2015, the government procured millions of units in
bulk and distributed the same with upfront cost of Rs10 with the balance amount of Rs90 was added in the consumer’s
electricity bill over the subsequent 10 months. Recently, the government, World Bank and EESL signed a USD220mn loan
guarantee to push energy efficiency programs in India. Under this program, the government will deploy 219mn LED bulbs,
5.8mn ceiling fans and 7.2mn street lights.
 Under the Energy Efficient Building Programme, EESL is expected to invest ~Rs10bn covering more than 10,000 large
government/private buildings by 2020. It is estimated to retrofit 10mn LED lights, 150mn ceiling fans and 15mn energy
efficient ACs in these buildings. All these efforts would benefit private players such as Crompton Consumer, Orient
Electric, Dixon, and Amber Enterprises in the listed space.
30

Earnings at Risk
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EESL’s initiatives for LED lighting
Government initiatives Details
Under DELP, EESL has acquired LED lamps in bulk through competitive bidding, and distributed them to
Domestic Efficient Lighting Programme (DELP)
consumers through power distribution companies.
Under this programme, 50-watt fans are provided by EESL at Rs1,150 per unit on upfront payment, or at total of
Energy Efficient Fans Programme (EEFP) and Energy Rs1,200, if taken on equated monthly instalments (EMI). The EMI is adjusted against electricity bills of
Efficient Agriculture Pumps Programme (EEAPP) consumers. EEAPP has been launched by EESL to replace the old and inefficient pump sets of farmers free of
cost.
SEEP is designed to bring accelerated market transformation for super-efficient appliances by providing financial
stimulus innovatively at critical point/s of intervention. Under this program, the ceiling fan has been identified as
Super-Efficient Equipment Programme (SEEP) the first appliance to be adopted. SEEP for ceiling fans aims to leapfrog to an efficiency level which will be about
50% more efficient than market average by providing a time-bound incentive to fan manufacturers to manufacture
super-efficient (SE) fans and sell them at a discounted price.
Under this, EESL plans to bring investment of around Rs10bn ($154mn) covering more than 10,000 large
government/private buildings by 2020. It will retrofit around one crore LED lights, 150mn energy efficient ceiling
Energy Efficient Building Programme
fans, and 15mn energy efficient ACs in these buildings. Further, EESL will expand its services to offer centralized
AC systems, Energy Audits, and New Generation Energy Management System in buildings.
The Ministry of Power has tied up with several PSUs to promote the benefits of using LEDs all over India, which
The iLED the way campaign
has helped deploy 47.5mn LEDs.
LED Bulbs to be distributed through special counters set up at designated places and will be available at any
UJALA Programme
other location including shops. Bulbs to be distributed at 40% of the market price.
Street Lighting National Programme (SLNP) aims to replace India’s 14mn conventional street lights in India with
Street Light National Programme (SLNP)
Smart LED variants by 2019.
Source: EESL, Emkay Research
31

Earnings at Risk
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Industry- Companies moving in the right direction to drive demand
32

Earnings at Risk
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Competitive intensity likely to remain high
Given the growth prospects across the categories, competition is rising from both established players and new entrants venturing
into new categories. Voltas Beko is the big player that recently entered consumer appliances and extending the durables product
range. After the success in LED lighting and personal care products, Syska is entering into cables and wires. In addition, many
smaller players in various categories are expanding the reach in rural markets with low-cost products. Competition is expected to
remain intense while distribution reach, brand presence and recall, economies of scale of large established players should
continue to remain and they have advantages over local or unorganized players. Price disruption by new entrants/fringe players
has not impacted the large players in the past, while the recent aggression by Chinese players in categories such as TVs has
started to impact the dominant players. Haier has also upped its ante in smaller towns and rural markets. Companies such as
Havells, V-Guard, Crompton Consumers, Bajaj Electricals, and IFB spend ~3-5% of sales as advertisements, which is expected
to remain at elevated levels going forward as well.
Approx.
Established Combined Starting price Starting price Price discount to
Category market share New players
players market share (Rs) (Rs) established players
(FY17)
LG 23% 19,000 TCL 13,800
Samsung 29% 17,000 Daiwa 13,800
Television 75% -32%
Panasonic 6% 16,800 Micromax 11,400
Sony 18% 20,100 BPL 10,500
LG 33% 10,900 Intex 6,700
Samsung 18% 9,800 Onida 5,700
Washing Machine 72% -23%
Whirlpool 13% 8,600 T-Series 8,000
Godrej 9% 7,790 Mitashi 8,000
LG 32% 12,300 BPL 10,900
Samsung 25% 10,800 Intex 11,000
Refrigerator 85% -11%
Whirlpool 16% 12,900
Godrej 13% 13,300
Voltas 22% 24,000 MarQ 20,000
LG 16% 23,600 Mitashi 22,000
RAC 53% -11%
Lloyds 8% 24,000 Micromax 21,000
Hitachi 7% 23,100
Source: Industry, Company websites, Channel checks, Emkay Research Note: Prices of Television is pre GST cut from 28% to 18%
33

Earnings at Risk
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 We are of the view that the deepening of dealership/distribution reach by established players and sustained lack of product
innovation by fringe players (which ultimately will impact their business viability) will restrict any meaningful dent in the market
share of established players. However, established brands cannot afford to go slow on new launches, aggressive pricing and
continued after sale servicing. Competition across the categories will continue to remain high as large companies’ race for
market share is expected to continue. TV, as a segment, has started seeing higher competitive intensity from new entrants
and e-commerce platforms, which should adversely affect offline sales. Established players such as Sony, Samsung, and LG
have clearly stated their intent to increase the revenue contribution from premium products, while they have cut prices to
compete with Chinese players in small screen category. In addition, large format stores such as Croma, Reliance Digital,
eZone, and Vijay Sales have started offering in-house brands of WMs, ACs, microwave ovens, etc., and have found wide
acceptance among consumers. As per our channel checks, the in-house brands of LFRs contribute ~8-10% of their sales and
the same also has better margins.
 Competition from fringe players and new entrants (Chinese players) is expected remain high in rural areas as those markets
will have healthy growth penetration increase going forward. Brands such as itel, TECNO, Infinix and Syinix are all set to be
launched in 2019. Transsion Holdings, the owner of the Syinix brand, is planning to launch an entire range of consumer
durables ─ TV, AC, Refrigerators, Washing Machines, etc. ─ under the brand. The company is currently doing market testing
in Rajasthan and Uttar Pradesh.
 The contribution of online retail in electronics and appliances sales was around 3-5% in 2016 and is expected to reach around
20-25% by 2020. This is expected to translate into the online retailing in electronics and appliances seeing a CAGR of 75%
between 2016 and 2020. During the festive season in 2016, ~25% of LED TV sales, 8-10% of WM, REF and ACs, and 30%
of microwaves sales were made through the online channel. In 2018, consumer durables grew 57% and now e-commerce
contributes ~10% of durable sales. However, the implementation of the recent draft e-commerce policy will bring some relief
for the offline retailers.
34

Earnings at Risk
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Category Fringe players Approx. Volume Market Share

Whirlpool
Haier
Air conditioner Onida 8.0%
IFB
Sharp
Haier
Panasonic
Washing Machine Lloyd 9.0%
Intex
Kelvinator
Haier
Hitachi
Refrigerator Panasonic 5.0%
Electrolux
Intex
Lloyd
Videocon
Television Haier 9.0%
Onida
Micromax
35

Earnings at Risk
©
Reduction in GST rates ─ Structural positive for most categories
The GST rate reduction for key categories such as Fans, Refrigerators, TV, and Washing machines augur well for the demand
push. Other macro factors such as electricity availability and other structural factors including sustained GDP growth remain in
favor of demand push. If the government’s GST collections surge in the coming months, there is a likelihood of a relaxation in
GST rates for categories such as ACs while its timeline remains uncertain.
GST
Excise VAT Total Tax
17th July'17 15th Nov'17 27th July'18 1st Jan'19 Impact
Television 23-28% 28% 28% 18% Up to 27" 18% Up to 32" ↑
Refrigerator 13% 14% 27% 28% 28% 18% 18% ↑
AC 13% 14% 27% 28% 28% 28% 28% ↓
Washing Machine 13% 14% 27% 28% 28% 18% 18% ↑
Air Coolers 24% 28% 18% ↑
Fans 13% 14% 26% 28% 18% 18% 18% ↑
Mixers 13% 14% 26% 28% 18% 18% 18% ↑
Induction tops 13% 14% 26% 28% 18% 18% 18% ↑
Food processors 13% 14% 26% 28% 18% 18% 18% ↑
Domestic MCB 13% 14% 26% 28% 18% 18% 18% ↑
Industrial Switchgear 13% 14% 26% 28% 18% 18% 18% ↑
Switches 13% 14% 26% 28% 18% 18% 18% ↑
Industrial Cables 13% 6% 19% 28% 18% 18% 18% ↔
Housing Wires 13% 6% 19% 28% 18% 18% 18% ↔
LED Lamps 6% 9% 15% 12% 12% 12% 12% ↑
CFL, Tube Lights 6% 9% 15% 28% 18% 18% 18% ↓
Luminaries 13% 9% 22% 12% 12% 12% 12% ↑
Stabilizers 18% 18% 18% 18% 18% ↔
UPS 18% 18% 18% 18% 18% ↔
Pumps 12% 12% 12% 12% 12% ↔
Domestic Appliances 26% 28% ↔
Solar Water Heater 0% 5% 5% 5% 5% ↓
Water Heaters 26% 28% 28% 28% 18% ↑
Source: Government of India, Emkay Research
36

Earnings at Risk
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Advertisement spends as % sales to sustain at current levels
There has been instances in the past where in big brands spent huge amount on ad and marketing campaigns, while it dries up
in 2-3 years. A lack of consistency in marketing campaigns, new product launches, and sustained increase in distributor reach
restrict even larger brands from growing. One of the most prominent example is Panasonic, which targeted to reach 10% market
share by 2012 and 25% market share by 2018 across various product categories. However, it did not achieve the targets as the
company aggressively run ad campaigns for 2 years and then discontinued it. Aggressive marketing campaigns and consistency
on the same to build brand will be key to watch out for from Voltas Beko, perceived to be a large brand with the parentage of
Voltas. New entrants via e-commerce will further increase competition, new policy implementation is delayed. A recent example
is Xiaomi’s launch of Smart TVs at ~40% lower price than existing players, which has led to a price disruption. Established
players need to continue to invest in brand strengthening, distribution expansion, and technological upgradation to remain
relevant and drive healthy revenue growth. Going forward, we expect advertisement spends of both established and new brands
to remain high.
Advertising spends as % sales by various companies
8%
7%
6%
5%
4%
3%
2%
1%
0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
CG Consumer electricals Finolex cables Havells IFB Industries Orient Electric TTK Prestige V-Guard Industries Whirlpool India
Source: Companies, Emkay Research

37

Earnings at Risk
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Distribution reach one of the key catalyst in driving penetration
Unlike consumer staples, appliance/durables requirement for Company Dealers/Distributors 3 to 5 years Back Current
high-space format stores and commitment on sales takes Direct dealers 6500 8500
longer to develop distribution reach in relatively smaller Havells
Retailers 100000 100000
towns. Nevertheless, increasing demand for appliances, urge Galaxy Stores 375 575
to spend more for convenience along with easy availability of Branch Offices 30 40
financing schemes is driving distribution across the
Distributors NA 3000+
companies. In addition, the entry of small players across
Crompton Retailers NA 100000+
categories with lowest price point is also playing important
Service centers NA 500+
role in pushing rural demand (T-Series and Daiwa in Washing
Channel Partners 2000 4000+
Machines, and Mitashi in TV). We believe that the launch of Finolex Cables
Dealers 20000 30000+
such brands is important to initiate the buying habit for
IFB Points 400+ 440+
appliances among consumers and to start with a low price IFB Industries
Service Franchisees 740 825
point. Continued distribution/dealer expansion, new category
Direct channel partners 1000+ 3500
launches by established players have been the key driving
Retailers 100000 100000+
forces for healthy growth. Orient
Service technicians 500+ 1000+
Service centers 153 350+
TTK Prestige Prestige Xclusive 539 544
V-Guard Distributor 624 676
Dealers NA 5500
Whirlpool Service Network NA 3500+
Branch network NA 38
38

Earnings at Risk
©
Technology advancement to improve efficiency
 Technology upgrade and innovation have become a must for both companies and channel partners for driving efficiency and
timely execution. Companies are investing in technologies - in various aspects such as production, sales, and channel
partners. In our view, investment in technological upgrades not only bring efficiency but also save costs in the long run.
Companies have launched mobile apps for consumers and retailers/distributors, customer service portals, centralized data
management systems, product tracking systems, and sales force automation systems, among others.
 Havells has been leading the pack with investment in technology to drive efficiency and focus on targeted go-to-market
strategy. Some of its initiatives include E-Sampark, M-Connect, Enterprise Data Warehouse and Product Tracking, and
Automation. Crompton Consumer has also launched digital initiatives to bring more efficiency in the manufacturing and also
implemented a new ERP system. It is working on mobile app for dealers/distributors for effective tracking of sales. V-Guard,
over the last two years, has increased focus on technology and has implemented various programs across business
processes, such as Supply chain management, customer service, Sales force Automation, and overall IT support systems.
 In addition to technological advancement, companies are investing in expanding service centers. In a highly competitive
market, after-sales service is one of the most important aspects for consumer delight and it helps in boosting replacement
demand as well. Companies have launched consumer mobile apps to register complaints and track them instead of the typical
call center-based complaint registration mechanism.
39

Earnings at Risk
©
Technology advancement to improve efficiency − Havells leads the pack
Company Technology advancements Purpose Benefits
Designing & Data management Improvement in product design Margin Benefits
Havells Connect programme Home service to customers Improve Brand loyalty
Connect and promote products through industry
Power plus programme Database of retailers and electricians
stakeholders
M Connect Mobile App to connect trade partners Better monitoring of Inventory
Distribution Management Real-time monitoring of receivables, faster settlement of
Connect distributors digitally
System secondary schemes and better inventory management
A retailer app that supports direct communication between
eSampark App Automation has helped reduce RLM workforce by 50%.
Havells and its retailers
Havells
Efficient & hassle-free after-sales service and query
Customer Service Portal Improve Customer Experience
resolution
Data repository that stores transactional data from SAP,
Enterprise Data Warehouse Better business insights for quick decision-making
non-SAP applications and various external data sources
Big Data Analytics Generating insights to in-depth analysis Make more informed business decisions
Quality control, predictive analytics, and sustainable Drive intelligence and high level of automation in our
Industrial IoT
manufacturing manufacturing operations
Product Tracking and Enables tracking the product from manufacturing across the
Better Inventory Management
Automation value chain
Institutionalized with the support of robust IT solution on a Enhance the overall customer service experience, process
New Service delivery model
pan-India basis effectiveness, and operational efficiency
Supply Chain Management Revisit supply chain strategy, adopt leading supply chain Supply chain management enhancing capability and
Excellence – Udaan practices, and re-align SCM organization structure competitiveness of V-Guard supply chain
Enhanced the service level commitments to the customers,
Fragmented complaint logging system was replaced with a
V-Guard Customer Service – Parivartan improved the customer experience with timely status
centralized call management (Contact Center) system
updates
Project Tez Sales Force Automation Enhancing its trade partner service
Improve procurement and sourcing, to manufacturing,
Automating Customer
product design, quality assurance, sales & distribution, and Margin Benefits
Experience
customer service
Introduced 6 sigma technology
Improving manufacturing efficiencies Margin Benefits
Crompton in manufacturing
New ERP System Backbone and enabler for any long term strategy Make more informed business decisions
40

Earnings at Risk
©
Rising cost of Chinese imports to benefit Indian contract manufacturers
Global commodity prices have been highly volatile along with Commodity prices along with Crude and INR
the INR depreciation, which has affected gross margin 500 120
450 110
expansion of both OEMs and contract manufacturing 100
400
companies. Moreover, Chinese vendors have also increased 350 90
(Rs/Kg)
80
(USD)
300
the prices of AC and refrigerator compressors and it 70
250
60
happened for first time in last many years. The recent 200 50
150 40
increase in import duty by government on various products 100 30
has also increased the cost of imports from China. Key 50 20
9/1/2012
1/1/2013
5/1/2013
9/1/2013
1/1/2014
5/1/2014
9/1/2014
1/1/2015
5/1/2015
9/1/2015
1/1/2016
5/1/2016
9/1/2016
1/1/2017
5/1/2017
9/1/2017
1/1/2018
5/1/2018
9/1/2018
durable products such as ACs, Washing Machines, and TVs
have seen an increase in import duty and rise in overall
import costs from China. Increased competitive intensity in MCX Copper MCX Aluminium Crude Oil USD/INR
AC markets has been restricting price hikes to offset the Source: Bloomberg, Emkay Research
impact of higher input prices. Contract manufacturers are
well-placed to capture the incremental demand from OEMs PBIT margin of OEMs for last 7 quarters
as preference is now shifting toward Make-in-India. Both 25%
Dixon and Amber have proven track record across the
20%
various product categories. For both of them, MNC players
15%
are the major revenue contributors, underscoring the quality
10%
of their products.
5%
Basic customs Duty
Product 0%
Earlier Now
4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Air conditioner 10% 20% -5%
Household refrigerator 10% 20%
Crompton Lloyds IFB Industries
Washing machine less than 10kg 10% 20%
Compressor for air conditioner and refrigerator 7.5% 10% TTK Prestige Vguard Whirlpool
Source: Government, Emkay Research Source: Companies, Emkay Research. Note: In case of Lloyds its PBIT margin
41
Earnings at Risk
ED: ANISH MATHEW SA: DHANANJAY SINHA

Emkay
Earnings at Risk
©
India-China cost comparison
FY14 FY17 FY21E
Television India China India China India China
Raw Material 65% 60% 60% 55% 50% 50%
Utilities 13% 13% 13% 14% 12% 15%
Labour & Overheads 12% 13% 13% 16% 13% 20%
Total 90% 86% 86% 85% 75% 85%
Washing Machine
Raw Material 58% 54% 54% 52% 45% 50%
Utilities 13% 12% 12% 13% 12% 14%
Total 83% 79% 79% 81% 70% 82%
LED Lamps
Raw Material 70% 65% 60% 50% 50% 48%
Utilities 12% 13% 12% 14% 13% 15%
Total 94% 91% 85% 80% 76% 81%
Source: Dixon RHP, Emkay Research
42

Earnings at Risk
©
Indian Contract manufacturers − Growth opportunities visible
 Indian players could benefit from rising cost of imports from China and reducing price gap with Chinese products
The Indian Electronic Manufacturing Services (EMS) industry has witnessed a 26% CAGR over FY13-17 to reach ~Rs192bn
in revenues, and is expected to see a CAGR of 32% over FY18-21E. The low penetration of consumer electronics, increased
focus of brand owners to outsourcing production, and government incentives for Make-in-India are the key growth factors.
Further, rising labour cost in China, along with INR depreciation and the recent increase in import duty, on various products
augur well for indigenous EMS providers. Rising cost of imports from China could also potentially open export opportunities to
neighbouring countries as well. Both Dixon and Amber have some proportion of exports, still with some scope for strong
growth in the future.
 Rising cost of imports has propelled companies to focus on indigenization of products such as ACs, washing machines, and
LED lighting ─ positive for domestic manufacturers. Backward integration and economies of scale by contract manufacturers
can drive better control over cost and product quality. Rising outsourcing for ODM is beneficial for both the brands and EMS
players, and drives better focus on marketing and distribution focus for the brands.
Domestic Consumer Electronics market is estimated to see 20% Domestic Appliances market is estimated to see 12% CAGR in FY18-
CAGR in FY18-21E 21E
5500 25% 800 14%

5000 700 12%
4500 20%
600 10%
4000
15%
(Rs bn)
3500 500 8%
(Rs bn)
3000 400 6%
10%
2500
300 4%
2000 5%
200 2%
1500
1000 0% 100 0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Consumer Electronics YoY Appliances YoY
Source: Dixon RHP, Emkay Research Source: Dixon RHP, Emkay Research
43

Earnings at Risk
©
Indian Contract manufacturers − Growth levers available
 Indian manufacturers such as Dixon and Amber in the listed space could benefit from the recent changes in the macro
environment such as: 1) imports from China have become expensive due to a rise in input costs as the Chinese vendors have
raised prices of compressors in AC and refrigerators after many years as a result of the rise in commodity prices; 2) INR
depreciation and increased import duties on various durable products to promote Make-in-India; 3) in addition, rising
penetration with improved demand for durables augur well for Indian manufacturers; 4) rising competitive intensity could result
in higher focus on marketing and deepening distribution reach by the large companies and establishment of new players; 5)
outsourcing also saves cost of warehousing and logistics for OEMs. Both Dixon and Amber have presence in low-penetrated
categories such as Washing Machines and RACs. Dixon’s presence in high-growth segments like lighting should also support
healthy growth along with high replacement demand category, i.e., TVs.
 However, we believe that the negotiating power will still remain with the brands to decide on realizations as they would
continue have a command on volume growth. The ability to pass on the cost inflation on an immediate basis is still not in
favor of contract manufacturers.
China- Average wages increased 12% CAGR in 2005-17 Localization is on an upswing
70000 20% 100%

18%
60000 16% 80%
50000 14%
60%
12%
(yuan)
40000 10% 40%

8%
30000 6% 20%
20000 4%
2% 0%
10000 0% Room AC Refrigerator Washing FPD TV Air cooler
Machine
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Local Imported
Source: Trading economics, Emkay Research Source: Industry, Emkay Research

44

Earnings at Risk
©
Indian EMS/ODM Market to sustain healthy growth rate
India EMS/ODM market is estimated to see 32% CAGR in FY18-21E Market share of key EMS/ODM players
600 35%
500 30% 12.6%
25%
400 9.3%
(Rs bn)
20%
300
6.5%
15%
200
10% 66.3% 3.2%
100 5% 1.9%
0 0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Jabil Dixon SFO Elin PG Electroplast Others
India EMS/ODM YoY
Source: Dixon RHP Emkay Research Source: Dixon RHP Emkay Research
RAC EMS/ODM Market is estimated to record 27% CAGR from FY18-22E OEM/ODM manufactures account for 34% of the total RAC market volumes
6 45%
4.9 40% 15%
5
35%
4
4 30%
3.2
(mn units)
25%
3 2.5
20% 51%
1.9
2 1.6 15% 34%
1 1.2
10%
1 0.6 0.7
5%
0 0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Volume yoy RAC Brands OEM/ODM Imports
Source: Amber RHP, Emkay Research Source: Amber RHP, Emkay Research
45

Earnings at Risk
©
Contract manufacturers – Amber vs. Dixon
 Indian manufacturers such as Dixon and Amber in the listed space could benefit from the recent changes in the macro
environment as: 1) imports from China have become expensive due to a rise in input costs as Chinese vendors have raised
prices of compressors in AC and refrigerators after many years as a result of increased demand of ACs and a rise in
commodity prices; 2) INR depreciation and increased import duties on various durable products to promote Make-in-India; 3)
along with the above factors, rising penetration with improved demand for durables should augur well for the Indian
manufacturers; 4) rising competitive intensity could result in higher focus on marketing and deepening distribution reach by
the large companies. Both Dixon and Amber have presence in low-penetrated categories like Washing Machine and RACs,
respectively. Dixon’s presence in high-growth segments like Lighting should also support growth. Dixon has higher EBITDA
growth in near term, better Assets turn and RoCEs as compared to Amber, which is the reason for valuation difference for
both the companies.
Particulars Dixon Amber
Category Presence Semi-Automatic Washing Machine, TV, LED and Mobile Air Conditioner
Penetration levels ~15% (WM), >45% (TV), 90% (Mobile) ~12%
Untapped market- Mn units 1.8 1.5
Bill of Material across categories 75% (WM)/ 50% (LED)/ 25% (TV) ~70%
Market Share- FY18 WM-16% / TV-50%/Lighting-57% 19%+
Revenue contribution from top-10 customers- FY18 >91% 91%
Market Share of top 10 Customers - FY18 WM- 95% /TV- 87% 70%
Revenue CAGR FY14-18 27% 22%
Revenue CAGR FY18-21E 18% 18%
EBITDA CAGR FY14-18 44% 25%
EBITDA CAGR FY18-21E 22% 17%
PAT CAGR FY14-18 46% 29%
PAT CAGR FY18-21E 18% 41%
Average Fixed Asset Turnover (FY18-21E) 14.6 4.5
RoCE- FY18-21E 30% 15%
Valuations - EV/EBITDA (x) 15 12
Target Price 2,631 1,156
% Upside 21% 28%
46

Earnings at Risk
©
Earnings sustainability key for sustained Premium Valuations
 Consumer durables and the electrical companies (mentioned below) have seen a valuation re-rating to the extent of 2x over
the last four years, attributable to: 1) benchmark indices re-rating from FY15; 2) benefits of lower commodity prices; 3)
premiumization-led gross margin expansion; 4) GST rates reduction; and 5) sustained GDP growth. During FY11-14,
valuations were affected by the slowdown in economy (GDP grew ~5.7% from FY11-14) as well as falling consumer
sentiment, which reflected in the moderation in consumer durables volume growth. However, the recent volatility in
commodity prices, the INR depreciation, and cost inflation from Chinese components have not affected valuations as revenue
growth has been healthy and sustained growth is expected in the future. GDP growth, GST rate reduction and low levels of
inflation in the country augur well for consumer spending. The uptick in rural demand is key for healthy revenue growth as
future penetration increase will be driven by rural consumption and sustained urban demand.
 We are positive on the structural growth for the sector owing to: sustained revenue growth supported by a resilient economy;
better product mix amid the shift toward premiumization, which in turn would lead to gross margin expansion; distribution
expansion beyond larger towns/cities; easy availability of consumer financing, and conducive government initiatives.
 During FY14-18, cash generation has been healthy, driven by margin expansion; however, return ratios have either remained
stable or contracted for the sector. We are estimating sustainable revenue growth and gradual margin expansion wherein we
are baking 75 bps expansion over FY18-21E for our coverage universe.
 We set our target multiples factoring in: 1) revenue growth and category expansion; 2) execution capabilities (distribution
expansion and new product launches) along with market positioning; 3) the ability of brands to gain share in an increasingly
premiumizing market, 4) free cash generation; 5) working capital cycle; and 6) asset turn.
 As valuation multiples are already at premium levels, we believe that strong earnings growth will be crucial for a sustained re-
rating. There is bleak possibility for further expansion in multiples. While we see Consumer Durables and Electricals as a
structural growth story, our apprehensions on the sector emanate from its stretched valuations.
47

Earnings at Risk
©
Earnings sustainability key for sustained Premium Valuations
Re-rating started from FY15 On FCF yield, OEM’s as expensive as FMCG companies
Average P/E from Average P/E from FY16
to present expanded to
5.0
60 FY11 to FY15 was
15.7x 35.8x
4.0
50
40 3.0
2.0
(x)
30
(%)
20 1.0
10 0.0
0 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
-1.0
8/2/2011
12/2/2011
4/2/2012
8/2/2012
12/2/2012
4/2/2013
8/2/2013
12/2/2013
4/2/2014
8/2/2014
12/2/2014
4/2/2015
8/2/2015
12/2/2015
4/2/2016
8/2/2016
12/2/2016
4/2/2017
8/2/2017
12/2/2017
4/2/2018
8/2/2018
12/2/2018
-2.0
-3.0
V guard Finolex Cables Whirlpool Havells TTK prestige Havells Crompton Vguard Whirlpool Dixon Amber
Source: Bloomberg, Emkay Research Source: Bloomberg, Emkay Research
In FY13, valuations were aligned with In FY18 P/E multiples expanded despite Return ratios to expand and see some
return ratios lower RoE and RoCE catch up return ratio expansion
60 60
55
50 50
45 WHIRL
HAVL
(RoCE %)
(RoCE %)
(RoCE %)
40 VGRD 40
HAVL 35
TTKPT
30 FNXC
30 25 HAVL
FNXC
FNXC
20 15 20
WHIRL VGRD TTKPT VGRD
10 5 10
0 10 20 30 40 0 10 20 30 40 0 10 20 30 40
(RoE %) (RoE %) (RoE %)

Source: Company, Emkay Research Source: Company, Emkay Research Source: Company, Emkay Research
48
Earnings at Risk

Emkay
Earnings at Risk
©
Valuations − Contract manufacturers provide upside potential
 Indian contract manufacturers have grown at a higher rate over OEMs in the last few years, attributable to rising demand for
outsourcing, new customer additions, and new product category additions. We believe that revenue growth for both Dixon and
Amber will remain healthy, with category penetration across the durables continuing to improve on a sustainable basis over
the long term. In addition, the rise in import duty on Chinese products/components and INR depreciation should increase
demand for domestic manufacturing. Both Dixon and Amber have a track record of delivering quality products to MNC
brands, providing confidence to potential new customers.
 Similarly, margins have also improved over the same period with rising economies of scale and favorable raw material costs.
However, in the last few months, both crude and the INR have played spoil sport on margins. Nevertheless, with the recent
reversal in crude prices, margins are expected to see some improvement from Q4FY19.
 Given the high growth prospects, Indian companies should command premium to the Chinese counterparts. If we compare
the valuation of Chinese players during high-growth phase, Indian companies are trading at 41% premium to them, which we
believe is justified with higher growth and overall benchmark premium of the Nifty over the Hanseng index. We are valuing
both Dixon and Amber at a ~32% discount to OEMs while ~40% premium to Chinese peers last 6 years valuation multiple,
implying target EV/EBITDA of 15x/12x on FY21E for Dixon/Amber. Any disappointment on the growth front, intense
competition from Chinese players, market share loss of any key customer, and margins could lead to de-rating.
 Chinese counterparts have traded at an average of 14.4x PE and 11.6x EV/EBITDA over the last six years while in the best
growth phase years they have traded at 19.7x PE and 15.3x EV/EBITDA.
 Stocks have shed their euphoric valuations (especially Dixon) multiples due to midcap meltdown. Both Amber and Dixon are
now at reasonable valuations and offer attractive upside of 28% and 21%, respectively.
49

Earnings at Risk
©
Indian contract manufacturers have shown superior growth and command premium
valuations
Indian contract manufacturers have demonstrated higher sales Indian contract manufacturers have demonstrated higher EBITDA
CAGR (FY13-18) vs. Chinese players CAGR (FY13-18) vs. Chinese players
50%
35% 30% 40% 41%
30% 27% 40%
25% 25% 27%
18% 30%
20% 14% 13% 18% 17%
15% 10% 20%
12%
10% 7% 6%
4% 10% 6%
5%
0% 0%
ELECTRONICS
ELECTRIC
GUANGDONG
COOKWARE
GREE ELECTRIC
HANGZHOU
QINGDAO HAIER
Amber
Dixon
ELECTRIC
ELECTRONICS
GUANGDONG
ZHEJIANG SUPOR
GREE ELECTRIC
HANGZHOU
QINGDAO HAIER
Amber
Dixon
HISENSE
HISENSE
ZHEJIANG
ROBAM
-10%
ROBAM
SUPOR
COOKWARE
KELON
KELON
HAIER
-9%
HAIER
-20%
Source: Bloomberg, Emkay Research. FY13 should be read as CY12 for Chinese companies Bloomberg, Emkay Research. FY13 should be read as CY12 for Chinese companies
Chinese contract manufacturers (7 companies) are trading at average Chinese contract manufacturers (7 companies) are trading at average
P/E of 11x EV/EBITDA of 8.1x
20 35% 17
30%
15 25% 14
20%
(x)
10 15%
11
(x)
10%
5 5%
0% 8
0 -5%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 5
Average P/E Average Revenue Growth RoCE FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: Bloomberg, Emkay Research. FY13 should be read as CY12 for Chinese Source: Bloomberg, Emkay Research. FY13 should be read as CY12 for Chinese
companies companies
50

Earnings at Risk
©
Key risks
 Economic slowdown: A slowdown in the economy or a change in macro factors with higher inflation or slower demand from
rural could impact the sales of durables and electricals. As metros and large cities are decently penetrated across major
product categories and are important in driving premiumization, incremental demand from smaller towns and rural areas is the
key to sustained growth and penetration improvement for the industry.
 Price wars: Most durable categories are underpenetrated in comparison with both the global average and the emerging
markets average, attracting fresh competition from both domestic and global players. Segments such as TV, AC and
Electricals have seen high competitive intensity, putting pressure on ASPs and restricting value growth. Fringe players have
increased competition in Semi-automatic Washing Machines. In the Electricals segment, Lighting is most the competitive
category with aggression from both organized and unorganized players. Aggressive price wars and entry of new players could
restrict value growth and impact margins.
 Higher product returns: With longer product guarantees and warrantees offered by companies to gain market share,
maintaining product quality is important to avoid large number of replacements and servicing cost. For instance, smaller
players in the lighting segment has started to see ~17% product replacement, while the industry average has risen to 11-12%
from single-digit numbers a year ago.
 INR depreciation and commodity price inflation: Despite higher indigenization of components, companies still have to
import components like AC Compressors, LED Chipsets, TV panel, exposing them to INR depreciation. Competitive intensity
is restricting players from passing on the impact of INR depreciation and commodity price inflation to customers.
 Lack of change in replacement cycle: We estimate that replacement demand contributes ~30-55% of annual volumes
across major categories of consumer durables and electricals. Any delay in replacement demand due to either an economic
slowdown or a rise in product prices and sustained life of the product could impact demand.
51

Earnings at Risk
©
Key risks (Contd…)
 Slower-than-expected pick-up in housing demand: Demand for new housing has been weak over the last two years due
to delays in project completion, implementation of RERA, postponement of purchase by consumers, and shift of money from
real estate to either equity or other financial assets (especially after Demonetization). Continued weak demand for housing
could impact demand for consumer durable electrical and our assumptions on the same.
 Government project/spend delays: Any delays in government projects that are beneficial to durables consumption could
affect demand and incremental growth. Demand for switchgear, lighting, cable and wires have direct impact with housing and
electricity demand.
 Little room for error: Valuations of most of the durable and electrical companies are expensive in the hope of sustained
long-term growth from rural areas and replacement demand from metros/urban areas. Lower-than-expected growth and
sustained margin pressure for more than 1-2 quarters could result in a de-rating of valuations.
52

Earnings at Risk
©
Categories - Penetration and Premiumization on rise
53

Earnings at Risk
©
Air Conditioners: Lowest penetrated category to grow at healthy rate for longer
period of time
Window - ~12% of Industry Volumes Top-5 players’ volume share in RAC
Market Share
Brand Logo
(FY18)
1 Voltas 22.5%
2 LG 12.3%
 Industry Size: ~5.5mn units.
 Penetration of 12%
 FY18-23E volume CAGR: 11%
3 Lloyds 9.7%
Split - ~88% of Industry Volumes
4 Hitachi 8.4%
5 Diakin 6.5%
Source: Industry, Emkay Research. Note: Market share does not account for institutional sales
54

Earnings at Risk
©
Air Conditioners: Lowest penetrated category that should grow at a healthy rate for
long
 Air Conditioner is one of the lowest penetrated consumer durable category, mainly due to: 1) high purchasing and running
costs; 2) lack of continuous supply of quality electricity beyond major towns and cities; 3) availability of affordable air coolers;
and 4) lower per capita income. In terms of penetration, ACs stand at the bottom among other consumer durable products in
India. This pattern is similar in other Asian countries as well. The Indian RAC market currently stands at Rs138bn and it is
expected to grow at 11% over the next 5 years as penetration is expected to increase at a fast pace. In our view, strong
volume growth could be partially offset by a decline in realizations as competitive intensity is expected to remain high and the
AC market has the highest number of organized players fighting for market share. The Indian RAC market has seen volume
increase of 4.5mn (+14% CAGR) units over FY05-18. Going forward, we are estimating volume growth of 11% over FY18-
23E. Incremental demand drivers would be 1) increasing availability of electricity; 2) rising temperatures; 3) easy availability of
finance beyond large cities; 4) housing demand; and 5) overall economic growth. With industry volumes rising for the last few
years, replacement demand should also add to growth going forward. We are estimating replacement demand to contribute
~30-40% of industry volumes in the foreseeable future.
 Voltas remains the dominant player, with increasing market Market share (volume) of top 6 players in split Air conditioner
share. LG lost market share in FY18, while still remains a 25
dominant player. Brands such as Lloyd, Diakin and Hitachi 20

have gained market share in the past two years. Top-5
15
brands control ~60% of the RAC market, while the total (%)
10
number of brands stand at >37. Over the last years, Diakin
5
has been the most aggressive in pricing to push volumes
and drive market share. Split AC contributes ~88% of the 0
Voltas LG Lloyds Daikin Hitachi Bluestar
total RAC market and continues to grow at a faster rate.
FY16 FY17 FY18

55

Earnings at Risk
©
long
Region-wise sales of split AC in volume terms Region-wise sales of window AC in volume terms
1400000 450000
400000
1200000
350000
1000000 300000
Units
250000
Units
800000
200000
600000 150000
100000
400000
50000
200000 0
East West North South East West North South
 North India continues to dominate RAC sales due to rising temperatures, while South and West have also seen healthy
volume growth. The RAC market is moving fast toward invertor ACs, the share of which has increased from 15% two years
ago to ~35-40% currently. Invertor AC’s share of total sales volume is expected to rise to ~70-80% in 4-6 years as the price
gap between normal and invertor ACs has reduced significantly. The proportion of invertor AC sales are expected to rise
further, as companies continue their push and price gap between a 5-Star AC and Invertor AC also reduce (price gap has
reduced considerably and now stands at ~Rs2,000).
 The AC market typically has seen a trend wherein volumes grow at a healthy rate for 2-3 years and then slow down for about
2 years. In 9MFY19, volumes have been affected due to unfavorable weather, while bouncing back in FY20 would be crucial.
56

Earnings at Risk
©
long
RAC volume saw 11% CAGR growth in FY09-18 Penetration levels of RAC is low in India compared to global penetration
6.0 40% 120%

35% 100%
5.0 100%
30% 91%
25%
4.0 80%
20%
3.0 15% 60% 54%
10%
2.0 40%
5% 30% 30%
0%
1.0 20%
-5% 4%
0.0 -10% 0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Global China Japan Malaysia Thailand India
Source: Industry, Emkay Research Source: Amber RHP, Emkay Research
Despite low penetration, replacement demand would still play key role in volume growth. As per our estimates replacement
demand would contribute ~30-40% of the industry volumes in medium term.
Air conditioner FY19E FY20E FY21E FY22E FY23E
Total Volume (mn Units) 5.8 6.3 7.0 8.0 9.1
yoy 5% 9% 10% 14% 14%
Replacement volume 2.2 2.1 2.2 2.5 2.8
yoy 0% 3% 13% 11%
Replacement as % of Total Volume 37% 34% 32% 31% 31%

57

Earnings at Risk
©
Refrigerator − Healthy growth rate to sustain with premiumization
Direct cool Refrigerator volume market share
Market
Brand Logo
Share
1 LG 33%
2 Samsung 24%
 Industry size: ~13.4mn units
 Penetration: 35%
Frost Free
 FY18-23E volume CAGR:
10.4% 3 Whirlpool 17%
4 Godrej 13%
5 Haier 4%

58

Earnings at Risk
©
Refrigerator: Strong prospects for a further increase in penetration
 Refrigerator is better-penetrated than ACs, but there is still significant scope for an increase. Refrigerator penetration in India
is ~35% while rural penetration is still >15%. Urban India is fairly penetrated with ~60-65%, while rising nuclear families, new
housing, premiumization, and replacement demand support sustained fresh demand from urban areas along with
replacement demand, driving premiumization. The industry saw 8% growth in volumes and ~14% in value in FY11-18. The
refrigerator market is concentrated with a few large players, unlike the highly fragmented AC and TV markets. Top-5 players
command ~92% volume share in Direct Cool and ~96% in Frost Free. Higher initial capex and a lack of availability of
outsourced manufacturing are key factors for lower number of players.
 Factors like: 1) affordable price points, 2) increase in utility as temperatures are rising, 3) availability of electricity, 3) recent
GST rate reduction to 18% from 28%, and 4) low running costs (units of electricity consumed for 24 hours and compared with
tube light). We believe that there is tremendous scope for rural refrigerator penetration to increase and same would be driven
by the Direct Cool segment given the affordable price points and rising electricity availability in smaller towns. As we have
stated above, Refrigerators can reach to penetration levels of TV and Two-Wheelers in India over the next 5 years. After
satisfying the mobility and entertainment needs with entertainment need with TV/Mobiles, the low income/rural consumer
move toward a Two-wheeler and then refrigerator.
 Direct Cool dominates the Indian refrigerator market and will continue in the future, driven by 1) rising demand from Semi-
urban and rural areas, and 2) affordable prices. Whirlpool last year announced a capacity expansion for Direct Cool
refrigerators at its Pune facility, indicating that management expects sustained demand in the coming years. As per industry
estimates, DC (Direct Cool) accounts for 64% in value and 79% (FY17) in volumes.
Product Starting price (Rs) Household penetration Cost of running the product
Two wheeler 38,000 49% High
Television 13,000 45% Low
Refrigerator 12,000 35% Low
Washing machine 10,000 15% Low
RAC 20,000 12% High

59

Earnings at Risk
©
Refrigerator: Strong prospects for a further increase in penetration
Direct cool Refrigerator volumes saw 8% CAGR in FY11-18 Frost-free Refrigerator volumes recorded 7% CAGR during FY11-18
14.0 14% 4.5 25%
12.0 12% 4.0
3.5 20%
10.0 10%
(mn Units)
3.0
(mn Units)
8.0 8% 15%
2.5
6.0 6% 2.0
10%
1.5
4.0 4%
1.0 5%
2.0 2% 0.5
0.0 0% 0.0 0%
FY19E
FY20E
FY21E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Volume YoY Volume YoY
 Urban consumers and replacement demand for higher Refrigerator FY19E FY20E FY21E FY22E FY23E
capacity models: Incremental demand from the Urban Total Volume (mn Units) 15.0 16.7 18.5 20.2 22.1
markets and replacement demand have more preference yoy 12% 11% 11% 10% 9%
for high-capacity or Frost-Free models. In our view, Replacement volume 5.0 5.7 6.4 6.8 7.2
demand for Double-door refrigerators will continue for a yoy 13% 13% 12% 7% 5%
longer period of time despite new multi-door launches. Replacement as % of Total Volume 34% 34% 34% 34% 32%
Refrigerator is a category with the highest value growth in Average Realisation (Rs) 19,161 20,119 21,125 22,181 23,290
the past 8-9 years and is expected to continue going yoy 5% 5% 5% 5% 5%
forward. We are estimating value growth of 16% over Industry Size (Rs bn) 288 335 390 449 514
FY18-23E, the highest in the consumer durables space. Source: Emkay Research
60

Earnings at Risk
©
Washing Machines − One of the lowest-penetrated categories
Semi automatic Washing machine volume market share
Market
Brand Logo
Share
1 LG 35%
2 Samsung 19%
 Industry Size: ~6.3 mn units.
 FY18-23E volume CAGR: 9.6% 3 Whirlpool 10%
Fully automatic top load Fully automatic front load
4 Godrej 10%
5 IFB Industries 7%

61

Earnings at Risk
©
Washing Machine – Semi-Automatics dominate, but FAs growing fast
 Washing machines, as a category, is ~15% penetrated and the industry is dominated by semi-automatics. Higher
replacement cycle, lack of water availability with limited electricity supply, slow rise in rural penetration, demand mainly
coming from urban towns have restricted volume and value growth to ~8% and ~15% CAGR in FY11-18. Washing machines
account for ~13% of total white good category volumes. Many fringe players like T-series, Micromax, and Daiwa have entered
the market and launched Semi-Automatics (SA) at disruptive pricing to lure rural households and drive penetration.
 Semi-Automatics, which account for ~62% of the industry volumes, should continue to deliver growth; however, it would be
lower than Fully-Automatic machines (FA). Space constraint, attractive models and latest technological changes would
continue to attract urban consumers. Rise in women workforce beyond urban towns will drive penetration and also aid
continued growth for SA. Total industry stood at 6.3mn units in FY18 with SA accounting for 62%, while FA reporting 14%
growth. We expect industry volume growth of ~9.6% over the next 5 years, which would be driven by incremental demand,
brand push with distribution expansion, entry of new players like Voltas Beko and replacement demand.
 The introduction of new and attractive models in the FA category and the GST rate cut should aid growth in the medium- to
long term. FA machines should continue to attract demand from metros and large urban towns due to time constraints of
working class, less intervention required to operate, and space constraint. Washing machines, as a category, is concentrated
among Top-5 players who account for 82% of volumes. After the change in top management, Whirlpool’s aggressive stance
to increase its reach has benefited from Videocon’s wind-up. With a 15% share in the SA category and focus on distribution
reach could aid further market share gains for Whirlpool. However, LG continues to enjoy a lion’s share of ~34% in the
washing machine category.
62

Earnings at Risk
©
Washing machines – Replacement demand is for premiumization
Despite low penetration, replacement demand would still play key role in volume growth. We estimate replacement demand to
contribute ~30-40% of the industry volumes in medium term. Replacement demand should augur well for premiumzation with
consumers looking to upgrade.
Washing Machines FY19E FY20E FY21E FY22E FY23E
yoy 11% 9% 9% 9% 10%
yoy 11% 8% 4% 4% 8%
Average Realisation (Rs) 17,317 18,009 18,730 19,479 20,258
yoy 5% 4% 4% 4% 4%
Industry Size (Rs bn) 122 138 156 176 202
63

Earnings at Risk
©
Television − Well-penetrated and highly competitive category; replacement demand
key for growth
Small screen up to 32 inches contribute ~86% of industry volumes Volume market share based on offline/retail formats
Market
Brand Logo
Share
1 Samsung 27%
2 LG 24%
 Industry size: ~13.7mn units.

3 Sony 19%
 FY18-23E volume CAGR: 4.4%
Large screen >32 inches contribute ~14% of industry volumes

4 Panasonic 9%
64

Earnings at Risk
©
Television − Highest-penetrated category in consumer durables
 Television is the category with the highest penetration in consumer durables and equivalent to Two-Wheelers in India.
Penetration in urban markets is >80%, while rural penetration is ~35%. Nevertheless, with rising content consumption,
cheaper content of options (Free Dish), falling price of entry-level TVs, low levels of multi-TV homes in urban markets,
replacement of CRT TVs and reduction in replacement cycle should continue to drive growth. In FY11-18, TV has recorded
volume growth of 0.8% and value growth of ~9.5%. We believe TV and AC as a category can go beyond 100% penetration as
both these products have multi-product utility in a single home; therefore, volume growth can continue though lower than
other under-penetrated categories.
 TV has seen aggressive competition over the last two years with the re-launch of some lost brands like BPL, TCL and Sanyo
on online platforms at aggressive prices. The most recent, which has started to dent market, is Xiaomi’s entry into TV. It has
launched smart TVs at 40% lower prices vs. existing brands. Its strong brand pull in mobiles can help Xiamoi’s success in the
TV segment too. This has led to a price war in the industry. We are estimating volume growth of 4.4% over FY18-23E, while
value growth is estimated to be flat in the same period.
Television to witness 4.4% CAGR volume growth fro FY18-23E Top brands controlled ~82% of offline/retail sales
18 12%
16 2% 13%
14 8% 3%
27%
(mn Units)
12 2%
10 4%
8 0%
6 9%
4 -4%
2
0 -8%
24%
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY22E
FY23E
19%
Volume yoy Samsung LG Sony Panasonic Lloyd Videocon Haier Others

65

Earnings at Risk
©
Television − Intense price competition
Established players have cut prices of smart television by ~20% post Established players have cut prices of 43 smart television by more
competition from Xiaomi than 30% post competition from Xiaomi
35000 55000
30000 50000
25000 45000
20000 40000
(Rs)
(Rs)
15000 35000
10000 30000
5000 25000
0 20000
Samsung 32 inch smart TV price VU smart TV Price Samsung 43 inch smart TV price VU 43 inch smart TV Price
Before competition After competition Before competition After competition
Price of 32 inch Smart LED television of Established players vs

Replacement volume to dominate overall growth in television volume smaller players
Television FY19E FY20E FY21E FY22E FY23E Price difference vs
Established Fringe
Rs Rs established
Total Volume (mn Units) 15.1 15.1 15.9 16.5 17.0 Players Players
players (%)
yoy 11% 0% 5% 4% 3%
LG 21,299 VU 12,999
yoy 15% -4% 5% 3% 1% Samsung 21,483 Xiaomi 12,499
Replacement as % of Total Volume 58% 56% 56% 56% 55% -40%
Average Realisation (Rs) 18,832 18,832 18,832 18,832 18,832 Panasonic 18,693 TCL 13,476
yoy 0% 0% 0% 0%
Sony 21,999 MarQ 10,999
Industry Size (Rs bn) 285 284 299 311 320
Source: Emkay Research Source: Industry, Channel checks, Emkay Research
66

Earnings at Risk
©
Lighting- Highly penetrated and competitive category, replacement and rural
electrification key for growth
LED Bulbs Volume market share (FY17) of organised players
Market
Brand Logo
Share
1 Philips 34%
2 Bajaj 18%
 Industry size: Rs220bn.

 FY18-23E value CAGR: 13.6% 3 Havells 12%
 Organized market 60%
4 Osram 8%
LED down lighters and battens
5 Syska 7%
Source: Havells, Emkay Research
67

Earnings at Risk
©
Lighting − Sustainable long-term demand
 The Lighting segment would be one of the fastest growing categories, driven by multiple factors such as 1) rising availability
of electricity in rural India; 2) various government programs to drive demand through EESL; 3) government capex on roads,
infrastructure and logistics, 4) continued construction of new houses across the urban areas; 5) significant reduction in LED
bulbs/tube light prices; and 6) replacement of CFL bulbs and tubes along with demand for decorative lighting. We are
projecting revenue CAGR of ~14% over FY18-23E, driven by volume growth.
 The Indian lighting industry has high proportion of organized players, while 40% of the market is still controlled by the
unorganized players. Strong demand and no quality standards and lower-priced products compared with organized players
make it advantageous for the growth of unorganized players. In the organized space, 6-7 players control ~80% of the market.
The introduction of quality standards under BIS norms would restrict further penetration of unorganized players.
 Lighting has many sub-categories like Home Lighting, Industrial lighting, HID lights, and fluorescent tubular. Home lighting in
India contributes ~30% of the total demand, lower compared with developed markets. The government’s focus on rural
electrification and improving availability of electricity augur well for the demand in the long term. However, China has seen
huge LED capacity additions in the past and could pose risk to Indian companies on the pricing front.
 Over the past 12-15 months, the government has announced various energy saving schemes to deploy LED lighting and it
has been aiding growth for the sector. Schemes such as Domestic Efficient Lighting Programme (DELP), Street Light
National Programme (SLNP), Increasing awareness drives for LED lighting. These schemes had also significantly reduced
the MRP of LED bulbs over the last three years. Under the DELP scheme in 2015, the government procured millions of units
in bulk and distributed the same with upfront cost of Rs10 with the balance amount of Rs90 was added in the consumer’s
electricity bill over the subsequent 10 months. Recently, the government, World Bank and EESL signed a USD220mn loan
guarantee to push energy efficiency programs in India. Under this program, the government will deploy 219mn LED bulbs,
5.8mn ceiling fans and 7.2mn street lights. Procurement would be from the private sector, and should continue to aid volume
growth for companies such as Crompton, Orient Electric, Surya Roshni, Bajaj Electricals and others participating companies.
68

Earnings at Risk
©
Lighting − Sustainable long-term demand
LED Bulb prices declined at 41% CAGR during 2014-18 Lighting industry saw 12% CAGR in FY12-17
360 250
310
310
200
260
(Rs Bn)
204 150
210
(Rs)
160 100
104
110 50
55
60 38
-
10 2010 2011 2012 2013 2014 2015 2016 2017
2014 2015 2016 2017 2018 Conventional Lighting LED Lighting Overall
Source: Newspaper articles, EESL, Emkay Research Source: Industry, Emkay Research
LED product prices have seen substantial reduction over the last four years, which is attributable to EESL’s focus on replacing
old bulbs, street lights and lighting to lower the electricity consumption. LED Bulb prices have already crashed while batten could
see price reduction as EESL is expected to approve tender for the same. Our channel checks suggest that going forward there
could be minor price reduction in LED bulbs otherwise, prices are expected to stabilize at current levels. Significant reduction in
cost to the consumer, lower electricity consumption, longer product life augur well for strong demand from both residential and
government/industrial projects. Robust volume growth will offset the impact of declining prices.
69

Earnings at Risk
©
Lighting – Government initiatives and competition from unorganised players will
continue
LED Lighting market share of organised players (60% of the market)
Government initiatives Details (FY17)
Under DELP, EESL has acquired LED lamps 4% 3% 3%
Domestic Efficient
in bulk through competitive bidding, and 5%
Lighting Programme
distributed these to consumers through power
(DELP) 6% 34%
distribution companies.
7%
The Ministry of Power has tied up with several 8%

The iLEDtheway PSUs to promote the benefits of using LEDs all
12% 18%
campaign over India, which has helped deploying 47.5mn
LEDs.
Philips Bajaj Havells Osram
Syska LED Surya Roshni Wipro Crompton Greaves
LED Bulbs to be distributed through special
NTL Lemnis Others
counters set up at designated places and will
UJALA Programme be available at any other location including
shops. Bulbs to be distributed at 40% of the
market price.
Street Lighting National Programme (SLNP)

Street Light National aims to replace India’s 14mn conventional
Programme (SLNP) street lights in India with Smart LED variants
by 2019.
Source: EESL, Emkay Research
70

Earnings at Risk
©
Wires and Cables − Increase in power availability, housing demand and revival in
capex to drive demand
Domestic Wires Value market share of organised branded players
Brand Market Share

Logo
(FY17)
1 Polycab 24%
 Industry Size: Rs525bn.

 FY18-23E Value CAGR: 14%. 2 Finolex Cables 14%
 Unorganized ~34%
Low voltage and High voltage power cables

3 Havells 12%
4 KEI 6%
Industrial cables
5 RR Kabel 5%
Source: HPL Electric RHP, Emkay Research

71

Earnings at Risk
©
Wires and Cables industry – Organized players
Revenue of industry leaders (Rs mn)

Company
Polycab Wires Finolex Havells KEI Industries RR Kabel
FY08 21,304 8,287 9,241 8,694 4,008
FY09 22,473 7,848 9,912 9,815 4,219
FY10 25,114 9,824 10,037 9,097 4,264
FY11 31,767 13,257 12,318 11,611 5,895
FY12 37,756 16,864 15,930 16,415 8,039
FY13 37,195 19,627 16,925 15,126 9,424
FY14 38,319 19,963 19,264 15,502 11,413
FY15 44,095 21,919 21,904 17,143 13,013
FY16 53,135 22,059 24,595 19,113 14,423
FY17 56,874 23,820 26,756 20,436 15,754
FY18 63,306 27,318 26,834 24,246 NA
CAGR 11.5% 12.7% 11.2% 10.8% 16.4%
72

Earnings at Risk
©
Wires and Cables – Organized players to grow faster than industry
 Domestic cables and wires demand has direct correlation with infrastructure development, including government spends and
private capex, construction of new housing, power for all and replacement demand are the key drivers for growth. Further, the
wires and cable segment also has a higher proportion of unorganized players. However, large organized players have gained
market share and delivered better-than-industry growth over the last few years. The industry has recorded growth of 11%
over FY14-17, while players like Havells, KEI, Polycab, Finolex, and V-Guard have seen better growth over the same period.
 The electrical cables and wires segment of the industry constitutes 40-45% of the electrical equipment industry in India. The
increasing demand for power, light and communication has kept the demand for cables and wires high. Investments in power
transmission projects, execution of solar and wind energy projects, metro rail projects, and increased household spending
have all led to an increase in demand for power and building wires and cables. Further, growth in the industrial sector has
resulted in increased demand for flexible cables and wires and control and instrumentation cables.
 Aggressive distribution expansion and healthy ad spends for brand building have aided strong growth for large players. The
government’s move to reduce GST rates to 18% from 19% in pre-GST regime is a move in the right direction. We believe that
organized players will gain market share with the implementation of GST, while it would happen at a gradual pace as
unorganized players have not become less relevant post-GST. We expect Cable and Wires to witness ~14% CAGR over the
next five years.
 In our view, Havells should continue to outpace industry growth as it is expanding in the enterprise segment, akin to its order
wins in switchgear segment from Hyundai, Reliance, Tata Power and other large enterprises. While some other players have
formed JVs with global players to get access to technology for EHV. For instance, 1) Finolex has formed JV with J-Power
System to manufacture EHV; and 2) KEI has technical collaboration with Brugg Kabel AG, a manufacturer of extra high-
voltage EHV cables above 220kV and up to 400kV.
73

Earnings at Risk
©
Wires and Cables – Organized share to increase
Organized proportion is expected to increase to 74% in FY23 Market share of key players in wires and cables
120%
100% 24%
26% 34%
80% 39% 34%
60%
40% 14%
74%
61% 66%
20% 5%
6% 12%
0% 5%
FY14 FY18 FY23E
Oragnised Unorganised Polycab Finolex cables Havells RR Kabel KEI Others Unorganised
Source: Polycab India DRHP, Emkay Research Source: HPL electric RHP, Emkay Research. Note: Market share as of FY17
74

Earnings at Risk
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Drivers for Wires and Cables industry
Residential units supply and absorption Housing for all is likely to generate demand for 49mn houses
300000 60% 60
40% 49
250000 50
20%
200000 40
(Units)
(mn units)
0%
150000 30
-20%
19
100000 20 15
-40%
10
50000 -60% 10 5
2012 2013 2014 2015 2016 2017 1H2018
0
Supply Absorbtion Supply YoY Absorbtion YoY EWS LIG MIG HIG Total
Source: JLL FICCI Report, Emkay Research Source: Industry, Emkay Research
Office space absorption and completion Retail space absorption and completion
90 60% 18
54%
80 50% 16
70 40% 14
37.3
31% 30%
35.3
33.6
36.6
60 12 6.7
(mn sq ft)
22%
33.5
20%
26.8
50
29.9
26.8
10
(mn sq ft)
28.7
10%
40 3%
-2% 0% 8 5.1
30 5.2 4.7
-9% -10% 6 4.5
20 36.7 -20% 38.5 41.5 40.8 42 -20% 3.3
30 29.4 34.9 -23% 8.8
10 26.9 4
-30% 5.7
2 4.1 1.6 3.2 4.6 5.2
0 -40% 3.6 2.7
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 0 1.3 0.8
-0.3
-2 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
New completion Net Absorbtion
New completion YoY Net Absorbtion YoY New completion Net Absorbtion
Source: JLL FICCI Report, Emkay Research Source: JLL FICCI Report, Emkay Research
75

Earnings at Risk
©
Fans – Well-penetrated and competitive category, replacement demand key for
premiumization
Economy Fans Volume market share of top 5 organised brands

Market
Brand Logo
Share( 2017)
1 Crompton 25%
Premium Fans
2 Havells 16%
3 Usha 16%
 Industry Size: ~65mn Units.

 Penetration stands at 90%
4 Orient 16%
 FY18-23E volume CAGR: 5%
Non- Celling Fans contribute 30% of the industry volumes

5 Bajaj 12%
76

Earnings at Risk
©
Fans: Well-penetrated category but sustained single-digit growth visible over long
term
 Similar to lighting and wires, fans have use in both in housing and industrial requirements. Key drivers for fans are largely
similar to lighting and wires: 1) rural electrification, 2) increasing construction of houses in urban towns, and 3) replacement
demand. These factors have led to volume growth of 5% over FY11-18, while value increase has been restricted due to a rise
in raw material prices.
 Organized players control 75% of the segment and out of that 4-5 players have ~85% market share. The majority of the fans
demand is met through domestic production. Continued demand from rural areas with government electrification schemes
would aid growth and all the organized players have been focussing on increasing SKUs of premium fans to cater to
replacement demand and incremental urban demand. Urban penetration of fans is ~95%; therefore, replacement demand
account mainly for the incremental demand from urban and semi-urban areas.
 Havells has been the market leader in premium fans and others have now started to launch premium SKUs. Companies are
now focusing on increasing contribution of premium and decorative fans, as the category is largely penetrated well and
incremental replacement demand could drive premiumization. Focus on improving product mix will also lead to margin
accretion. Incremental competitive intensity in the premium and ultra-premium category is expected to increase from new
players as well. As per our dealer checks, LG is launching a range of premium fans (price point >Rs4,000) with latest
technologies.
 We expect Fans to deliver ~5% growth over the next five years and the key drivers would be 1) housing for all scheme of
government; 2) improvement in construction activities in semi-urban towns; 3) continued replacement demand from key urban
towns; and 4) sustained improvement in electrification across the rural areas. Based on our understanding, both economy and
premium fans should see growth. Unorganized players are expected to remain relevant, while marginal market share loss
should continue in the long term. Price sensitive buyers in rural areas should provide an edge to unorganized players and
organized players would find it difficult to reach that deeper and service consumers.
77

Earnings at Risk
©
Fans − to see 5% CAGR volume growth over next five years
Fans saw 5% CAGR from FY11-18

70 35%
60 30%
50 25%
(mn units)
40 20%
30 15%
20 10%
10 5%
0 0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Sales Volume Mn units Organized Unorganized Growth%
Given the highest highest penetration, the category will see highest proportion of replacement demand. Fans should also record
the highest premiumization-linked demand.
Fans FY19E FY20E FY21E FY22E FY23E
yoy 9% 10% 2% 3%
yoy 27% 27% 4% 7%
78

Earnings at Risk
©
Fans – Havells leads the premium category SKUs with a huge margin
Company Categories Price Range No of SKU's Features
Architectural bronze finish, Remote control operations, Contemporary LED underlight, 4

Premium Underlight Rs 10,000-36,000 15
blades or higher
High Performance even at Low Voltage (HPLV), Dust Resistant Paint Finish, Unique
Decorative Rs 2,880-4,990 92
insert mould design patterns
Havells
Special Finish Rs 5,400-10,800 20 State-of-the-art aesthetics & styling looks, Four speed control with remote, Higher blades
Energy Saving Rs 2600-3500 11 5 star rating, Elegant and subtle body
High performance at low voltage, Wider tip blades for effective air circulation, Long
Regular Rs 2600-2800 45
lasting paint finish
Contemporary design to complement modern décor, Under light fan with convenience of
Super premium Rs 7,000-15,000 6
pull cord for speed and light control,
Crompton Powerful motor for better performance, Sharp strapping blade design for superior air
Premium Rs 3,500-6,500 19
flow, Intelligent speed control sensors that adjust Fan's speed automatically
Decorative Rs2,500-3,000
Premium Rs 2,500-4,500 23 Elegant looks with decorative body ring, Unique blade design and powerful motor.
Orient Electric Underlights Rs 5,000-8,000 10 Under light fan with remote operation, Decorative lighting with silent operations.
Aero Series Rs 4,000-6,000 5 Unique aerofoil design & winglet technology, Super Powerful. Sweep, Super Silent
Elegant construction of motors and canopy with plated finish, Convenient pull cords for
operating light and speed, Specially designed light gives more beauty to living décor
V-Guard Trendy & integrated design of body & leaf ornaments, Powerful motor with superior
Premium Decorative Rs 2,500-4,000 5
performance, Special metalized finish in ornaments
Premium Smart LED Rs 2,500 1 LED Colours as you Desire, i-Mode, Breeze Mode
Wide tip blades for high air delivery and air spread, Separate chain chords for light and
Lifestyle Rs 5,490-19,270 18 speed control, Superior high permeability grade electric steel lamination for improved
USHA life, Performs well even at low voltage, 3 speed pull cord control for speed regulation
Special Finish Rs 2,360-3,540 27 Dust resistant coating, Modern décor crafting, superior performance at low voltage,
Source: Industry, Company, Emkay Research
79

Earnings at Risk
©
Pumps − Demand linked to real estate development and monsoons
 Pumps are categorized under retail and industrial categories and both contribute equally to the industry revenues. Industrial
demand, construction activity, monsoons are the key drivers for the pumps segment. Agricultural pumps demand is
dependent on monsoons and weak monsoon drives incremental demand. Industrial demand is directly linked to construction
and industrial activity along with infrastructure development. Organized players control 70% of the pump market and majority
of the demand is met through domestic production itself. Top 4-5 players account for ~45% of the organized market. While
there are a few unorganized players catering to 30% of domestic demand.
 In good monsoons, demand is impacted as farmers largely utilize rainwater for cultivation (FY14). Three out of last five years
have seen good monsoons, adversely affecting demand for agricultural pumps.
 Price is one of the most important factors for pumps as end-customer is highly price-sensitive. Recently, Crompton
Consumer launched it low-price product called ‘Crest Mini’ to drive volumes and gain market share.
 Pumps market size currently stands at Rs100bn and we are expecting 5% CAGR over FY18-23E. Growth for agriculture
pumps will remain volatile as it depends on the rainfall. Growth for domestic and industrial pumps will be dependent on
urban housing demand and industrial activity.
Average annual rainfall
1300 Players Residential Agricultural Speciality Solar Pumps

1250
1200 Crompton P P P P
1150
1100 Havells P P P
(mm)
1050
1000 V Guard P P
950
900 Kirloskar brothers P P P P
850
800 KSB Pumps P P P P
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Polycab P P
Source: Government, Emkay Research Source: Company, Emkay Research 80

Earnings at Risk
©
Pumps − Tilted toward organized players
Market share of top 5 organized players in Pumps (FY17) Organized proportion in Pumps is high (FY17)
6%
12%
30%
8%
70%
8%
11%
Kirloskar brothers CRI Pumps KSB Pumps Crompton Texmo Organised Unorganised
81

Earnings at Risk
©
Companies - Prefer Contract manufacturers, CROMPTON IN, stretched
valuations limit upside for HAVL IN, WHIRL IN, and VGRD IN
82

Earnings at Risk
©
Amber Enterprises
Buy, Target Price Rs1,156 Leader in the lowest penetrated category; focus is on increasing wallet share
The focus on product expansion, customer additions, and wallet share increase: Amber has a commanding market
share of 55.4% in the RAC OEM/ODM market and 19.1% in the overall RAC market. It has introduced new IOT-based inverter
RAC models and also added new RAC components such as a brushless DC motor and inverter controllers, which should help
it garner higher wallet share from existing customers. Growing demand from players to drive indigenization after import duty
hike and low penetration of RACs (~7%) in the country to benefit Amber in driving sustained revenue growth. We expect AC
revenues to see 12% CAGR in FY18-21E, higher than AC’s industry volume growth estimates of 9% over the same period.
Acquisition of ILJIN and Ever Electronics to drive backward integration: Amber’s acquisitions of ILJIN and Ever
Electronics, which are engaged in the manufacturing of electronic components and PCBs for larger consumer appliances, have
increased the addressable market for it and should also reduce the dependence on the AC business. Currently, AMBER
derives ~15% of its revenues from non-AC components, which it expects to rise to ~21% by FY21E. However, this would be
margin-dilutive while being absolute EBITDA-accretive.
Better performance of ILJIN and Ever to hep margin improvement: As Amber leverages its existing relationship for getting
new customers and product approvals of ILJIN and EVER Electronics, it could help in improving the revenue trajectory and
also bring economies of scale and better sourcing terms from the supplier, which in turn will aid in margin improvement. We
expect EBITDA margins for both entities to expand by ~100bps over next two years.
Outlook and valuations: We expect revenues, EBITDA and PAT to grow at a CAGR of 19%, 17% and 41%, respectively, for
FY18-21E. Increased focus of brands for domestic production to reduce dependency on Chinese vendor and currency
fluctuations augurs well for Amber to outpace industry growth in the medium- to long term. We recommend a Buy rating, with a
target price of Rs1156 (12x FY21E EV/EBITDA). Risks to our call: 1) lower than expected industry growth for RAC, 2) lower
than expected margin improvement of ILJIN and Ever, and 3) in-ability to pass on full impact of cost inflation to OEM’s.
83

Earnings at Risk
©
Market leader in RAC manufacturing
 Amber is a market leader in the RAC OEM/ODM industry in India, with a market share of 55.4% in terms of volumes in FY17.
Further, Amber’s share of the overall RAC market in India in terms of volumes has grown from 14.7% in FY15 to 19.1% in
FY17. In FY17, OEM/ODM manufactures ~34% of the total RAC market volumes by demand. By FY22, the OEM/ODM
volume share is expected to reach 56% of the total RAC market volumes. This augurs well for sustained growth.
OEM/ODM Constitutes 34% of RAC Volumes Amber’s market share in FY17 increased to 55.4%
100%
15% 90%
80% 44.6%
52.7%
70%
60%
51% 50%
40%
34%
30% 55.4%
47.3%
20%
10%
FY15 FY17
RAC Brands OEM/ODM Imports Amber Others
Source: Company, Emkay Research Source: Company, Emkay Research
84

Earnings at Risk
©
Top-4 customers command ~50% market share
 Key customers include leading RAC brands such as Voltas, Hitachi, LG, and Panasonic. Its customers have ~50% share in
the RAC market (FY18). Top10 customers account for 91% of its revenues (FY18) and command 75% market share in
RAC. Further, Amber has exposure to entire industry due to its wide product offerings
Market Share of key Customers of Amber, account for ~50% of the

Revenue contribution from top 5 and 10 customers
industry
25% 100%
90%
20% 80%
70%
15% 60%
50%
40%
10%
30%
20%
5%
10%
FY17 H1FY18 FY18
0%
Voltas LG Hitachi Panasonic Top 5 Cutomers Top 10 Cutomers
Source: Industry, Company, Emkay Research Source: Industry, Company, Emkay Research
85

Earnings at Risk
©
Product streams
 RACs: Amber designs and manufactures complete RACs, including window air conditioners (WACs) and indoor units (IDUs)
and outdoor units (ODUs) of split air conditioners (SACs), with specifications ranging from 0.75 ton to 2 tons, across energy
ratings and types of refrigerants. It also designs and manufactures Inverter RACs on ranging from 1 ton to 2 tons.
 RAC components: It manufactures critical and reliable functional components of RACs, such as heat exchangers, motors,
inverter and non-inverter printed circuit boards and multi-flow condensers. Amber manufactures other RAC components such
as sheet metal components, copper tubing and injection moulding components.
 Other components: Amber manufactures components for other consumer durables and automobiles such as case liners for
refrigerator, plastic extrusion sheets, and printed circuit boards for consumer durables and the automobile industry, sheet
metal components for microwave, washing machine tub assemblies, and for automobiles and metal ceiling industries.

86

Earnings at Risk
©
Capacity and plant location details
 Capacity: Amber has 11 manufacturing facilities with a total installed capacity as on March 31, 2017 to manufacture up to
1.59mn ODUs, 1.37mn IDUs and 0.59mn WACs annually.
Category Capacity (units) Plant Location Products
Room AC RAC (IDU, ODU &WAC), Heat Exchangers, System

Dehradun 3 units
tubing, Plastic molding & Sheet metal parts
ODU of SAC 1586406
IDU of SAC 1365000 RAC (IDU & ODU), Heat exchangers, Plastic molding
Jhajjar
and Washing Machine tub assembly
WAC 585000
Components Faridabad, PICL Electrical motors for RAC and commercial AC
Case liner (ref) 1950000
Plastic extruded sheet AC ODU, Sheet metal parts
12528000 Pune
Heat Exchanger 2990000
Inner case & plastic extruded sheet
Multi-flow Condenser 520000 Greater Noida, Ecotech
Plastic injection moundling - RAC 1129042

Sheet metal parts for AC, refrigerator microwave, water
Sheet metal components - ODU of SAC 2621667 Greater Noida, Kasna
tank
Sheet metal components - WAC 390000
Rajpura R & D Lab, Tool room & sheet metal parts
Sheet metal components - IDU of SAC 552500
Electric Motors - RAC 3202284
PCBs for Air Conditioners & other Consumer durable
Greater Noida IL JIN
Electric motors for air coolers 721392 products like washing machine, microwave etc
87

Earnings at Risk
©
Cash generation to improve with healthy EBITDA growth
Revenue is estimated to grow 19% CAGR from FY18-21E Gross Profit is estimated to grow in line with revenue from FY18-21E
45000 60% 7000 25%
35000 40% 20%
(Rs mn)
(Rs mn)
5000
15%
25000 20%
10%
3000
15000 0% 5%
5000 -20% 1000 0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Revenue YoY Gross Profit Gross Profit Margin
EBITDA to see 17% CAGR from FY18-21E with stable margins PAT to see 41% CAGR from FY18-21E on lower interest expense
3500 15% 2200 200%
1700 150%
(Rs mn)
(Rs mn)
2500 10%
100%
1200
1500 5% 50%
700 0%
500 0%
200 -50%
EBITDA EBITDA Margin PAT YoY
RoE & ROCE to expand by ~600bps & ~375bps respectively from FY18-21E FCF generation to improve with stable capex
20% 2000
15%
(Rs mn)
1000
10%
5% 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
-1000
RoE RoCE OCF FCF
Source: Company, Emkay Research Source: Company, Emkay Research 88

Earnings at Risk
©
Key Financials (Consolidated)
Income Statement Cash Flow

Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E
Revenue 16,519 21,281 26,132 31,545 35,630 PBT (Ex-Other income) (NI+Dep) 269 807 1,164 1,794 2,326
Expenditure 15,213 19,445 24,083 29,008 32,675 Other Non-Cash items 0 0 0 0 0
EBITDA 1,305 1,835 2,049 2,537 2,955 Chg in working cap (883) 207 (438) (443) (356)
Depreciation 401 490 536 582 629 Operating Cashflow 1,417 1,270 1,214 1,517 1,856
EBIT 904 1,345 1,514 1,955 2,326 Capital expenditure (821) (2,107) (900) (900) (900)
Other Income 88 87 161 128 150 Free Cash Flow 596 (836) 314 617 956
Interest expenses 635 538 349 160 0 Investments 0 (57) 0 0 0
PBT 357 894 1,325 1,922 2,476 Other Investing Cash Flow (112) 557 0 0 0
Tax 136 271 397 577 743 Investing Cashflow (845) (1,520) (739) (772) (750)
Extraordinary Items 0 0 0 0 0 Equity Capital Raised 21 76 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0 Loans Taken / (Repaid) 412 (2,807) (400) (400) (340)
Reported Net Income 221 623 927 1,345 1,733 Dividend paid (incl tax) 60 0 0 0 0
Adjusted PAT 221 623 927 1,345 1,733 Other Financing Cash Flow (265) 4,712 1,194 920 1,104
Financing Cashflow (407) 1,444 445 359 764
Balance Sheet Net chg in cash 166 1,194 920 1,104 1,870
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Opening cash position 57 166 1,194 920 1,104
Equity share capital 238 314 314 314 314 Closing cash position 166 1,194 920 1,104 1,870
Reserves & surplus 3,389 8,613 9,541 10,886 12,619 Source: Company, Emkay Research
Net worth 3,627 8,928 9,855 11,200 12,933

Minority Interest 0 0 0 0 0 Key Ratios
Loan Funds 3,946 1,140 740 340 0 Profitability (%) FY17 FY18 FY19E FY20E FY21E
Net deferred tax liability 65 352 352 352 352 EBITDA Margin 7.9 8.6 7.8 8.0 8.3
Total Liabilities 7,638 10,419 10,946 11,892 13,285 EBIT Margin 5.5 6.3 5.8 6.2 6.5
Net block 5,568 7,100 7,464 7,782 8,054 Effective Tax Rate 38.0 30.3 30.0 30.0 30.0
Investment 0 57 57 57 57 Net Margin 1.3 2.9 3.5 4.3 4.9
Current Assets 6,724 9,830 11,565 13,917 16,319 ROCE 14.0 15.9 15.7 18.2 19.7
Cash & bank balance 166 1,194 920 1,104 1,870 ROE 7.1 9.9 9.9 12.8 14.4
Other Current Assets 622 697 815 947 1,046 RoIC 13.6 16.7 16.3 19.4 21.6
Current liabilities & Provision 4,867 6,866 8,438 10,162 11,442
Net current assets 1,856 2,964 3,127 3,755 4,877
Misc. exp 0 0 0 0 0
Total Assets 7,638 10,419 10,946 11,892 13,285
89

Earnings at Risk
©
Per Share Data (Rs) FY17 FY18 FY19E FY20E FY21E Growth (%) FY17 FY18 FY19E FY20E FY21E
EPS 9.3 19.8 29.5 42.8 55.1 Revenue 51.7 28.8 22.8 20.7 12.9
CEPS 26.1 35.4 46.5 61.3 75.1 EBITDA 14.8 40.6 11.7 23.8 16.5
BVPS 152.3 283.9 313.4 356.2 411.3 EBIT 9.1 48.8 12.5 29.1 19.0
DPS (2.5) 0.0 0.0 0.0 0.0 PAT (8.1) 181.4 48.8 45.1 28.8
Valuations (x) FY17 FY18 FY19E FY20E FY21E Quarterly (Rs mn) Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19
PER 94.6 44.4 29.8 20.6 16.0 Revenue 2,650 3,384 6,920 6,021 2,263
P/CEPS 34.0 25.1 19.1 14.5 11.8 EBITDA 220 241 679 550 89
P/BV 5.8 3.1 2.8 2.5 2.1 EBITDA Margin (%) 8.3 7.1 9.8 9.1 3.9
EV / Sales 1.5 1.3 1.0 0.9 0.7 PAT 23 1 338 289 (17)
EV / EBITDA 18.9 15.0 13.4 10.6 8.7 EPS (Rs) 0.7 - 10.8 9.2 (0.6)
Dividend Yield (%) (0.3) 0.0 0.0 0.0 0.0 Source: Company, Emkay Research
Shareholding Pattern (%) Dec-99 Jan-18 Mar-18 Jun-18 Sep-18

Gearing Ratio (x) FY17 FY18 FY19E FY20E FY21E Promoters - 44.0 44.0 44.0 44.0
Net Debt/ Equity 1.0 0.0 0.0 (0.1) (0.1) FIIs - 2.9 10.8 10.8 10.7
Net Debt/EBIDTA 2.9 (0.1) (0.1) (0.3) (0.7) DIIs - 8.7 8.4 7.9 7.7
Working Cap Cycle (days) 37.4 30.4 30.8 30.7 30.8 Public and Others 100.0 44.4 36.8 37.3 37.6
Source: Capitaline
90

Earnings at Risk
©
Crompton Greaves Consumer Electricals
Accumulate, Target Price Rs256 GTM and margin expansion in lighting key focus areas
Product innovation/launches to drive growth and leverage brand: The company has maintained its leadership position in
fans and domestic pump categories over the past 20 years, while it has not been able to expand into other durables categories
like its competitors have successfully done. The launch of anti-dust fans, which have clocked revenues Rs2bn in the first year
of launch, and the introduction of Air 360 and Crest Mini (pumps) provide us confidence on its ability for product innovation.
Market share gains with product innovation has led to increased contribution of premium fans from 11% in FY16 to ~19% in
FY18. Product launches in ECD segment (Water Geysers and air coolers) will enable them to drive incremental growth. We are
estimating revenue CAGR of 13% over FY18-21E, primarily driven by the ECD segment. However, management has to fast-
pace its strategy to enter new categories to aid long-term growth.
Revamping distribution strategy to enhance market presence: CGCL’s go-to-market strategy (GTM) of revamping
distribution channels through more retail space has been implemented in South India for LEDs. After the South, the initiative
was launched in Western India. The implementation is happening gradually as management is taking into account learnings
across the regions and dealer feedback. In our view, the focus on increasing retail presence through the implementation of the
GTM strategy is from a long-term positive, with marginal revenue impact during the transition.
Improving mix to enhance profitability: Product innovations along with a focus on mass premium, premium products, and
cost control have led to an improvement in gross margin by ~145bps in FY18. We expect gross margins to further improve by
~40bps by FY20E on above factors. We believe that the Mass premium and the Premium segments will grow faster than the
entry-level segment on an uptrend for replacement.
Outlook and valuations: We expect Revenues/EBITDA/PAT to grow at a CAGR (FY18-21E) of 13%/14%/18%. The success
of new product launches and the benefits of the GTM strategy to drive revenue growth. We initiate coverage with a
ACCUMULATE rating, with a target price of Rs256 (30x FY21 EPS). Risks to our call: 1) longer-than-expected time to reap the
benefits of the GTM strategy; 2) market share loss; and 3) failure of new product/s and delays in the launch of new products.
91

Earnings at Risk
©
New product launch pace has scope of acceleration
 Focus on new product launches: CGEL‘s focus has been on developing differentiated premium products and it has been
successful in Ant-Dust and Avencer E-Sense fans and Mini Crest pump. In Fans, the premium range now contributes ~19%
of revenues vs. 11% in FY16. This winters would be crucial for an uptick in water heaters as last year product launches were
delayed and in summers Air Coolers will have to play crucial role in driving revenues growth. The company is targeting to
launch one innovative product annually across the categories. In the hyper-competitive market, the pace of new product
launches is slower and could result in market share loss or lower-than-expected revenue growth compared with peers.
Further, the success or failure of single seasonal product could also result in opportunity loss in a particular financial year.
Nevertheless, the company has corrected its pricing in water heater category, which should help push sales.
Price comparison across main product categories across companies

Category Product Launch in recent years
Fans
Anti Dust Fans
Capacity Crompton Havells V-Guard Orient
Fans Avancer Series Fans
Basic 1200mm 1,206 1,597 1,180 1,120
Air 360 - Fans
Water Heater
Lighting Power Ray Batten Capacity Crompton Havells V-Guard Racold
Crest mini - Pumps 3 Liters 2,387 3,275 2,900 2,912

Pumps
High Pressure Washing pumps 10 Liters 5,900 6,538 5,733 6,250
25 Liters 6,899 7,957 7,600 7,800
Tri cool window cooler
Air cooler Air cooler
Mystique Turbo Cooler
Capacity Crompton Havells V-Guard Symphony
Air purifier
20 Liters 4,849 NA NA 5,785
Other Durables Duro Wet Grinder
55 Liters 8,999 12,089 11,595 10,788
Rhino Iron 75 Liters 9,999 12,899 NA 12,244
Source: Company, Emkay Research Source: Industry, Emkay Research
92

Earnings at Risk
©
Crompton Consumer
 We are estimating the ECD segment to see a 13% CAGR with EBIT margins of 19.5% over FY18-21. Growth is
expected to come from Fans, while the low base of Water Heaters and Air Coolers will also add to the topline.
 Fans: The company commands no. 1 position in the category and has ~27-28% market share. CGEL has been a market
leader in the economy category while it started gaining mark share in the premium segment after the launch of Anti Dust and
Avencer series of fans. As management’s target is to launch one new innovative product every year, we believe that if it is
able deliver a quality product, market share will continue to improve in the premium category. In Fans, a large part of growth
will come from replacement demand and the same mostly happen with an uptrend from consumer’s end. Added growth will
come from revival of residential real estate market and government’s thrust on the housing-for-all project.
 Other Appliances: The company’s focus on Water Heater and Air Cooler category will drive growth in other appliances. It
can leverage its strong brand pull on the same channel of Fans, which would ease the pain of distribution reach and
distribution expansion in the initial years of launch. However, timely product launches is key for market share gains as
competition has been intense across the categories. Acceptance of Air Cooler is important as Crompton is relatively new
player in the segment and ~60% of this segment is still controlled by the unorganized players. Distribution expansion with
innovative products and pricing will be key.
ECD Segment EBIT to see 15% CAGR in FY18-21E on margin
ECD segment revenue to record 13% CAGR in FY18-21E
expansion
50000 0.2 9500 25%
42000 0.15 8000 20%
34000 6500
(Rs mn)
(Rs mn)
0.1 15%
26000 5000
0.05 10%
18000 3500
10000 0 2000 5%
2000 -0.05 500 0%

FY16 FY17 FY18 FY19E FY20E FY21E FY16 FY17 FY18 FY19E FY20E FY21E
Revenue yoy
EBIT EBIT Margin

Earnings at Risk
©
Crompton Consumer
 Lighting volume growth healthy but price erosion can continue: The LED segment has seen strong volume growth due
to the continued decline in pricing on 1) EESL projects, and 2) competitive intensity. Volume growth is expected to remain
healthy, with demand from street lighting, residential replacement and fresh demand and other B2B segments. Price erosion
might continue but at a lower intensity vs. last two years. Our channel checks suggest that LED bulb retail pricing can fall by
another 10-15% and it could be higher for battens. Therefore, we expect lighting segment revenue to growth at 10% CAGR
over FY18-21E. Management has also indicated that it would be reducing dependency on the outsourcing of LED and looking
to bring quality under control with in-house manufacturing. Continued pricing pressure should restrict margin expansion in the
near term.
Lighting Segment Revenue to see 10% CAGR during FY18-21E Lighting Segment EBIT to witness 8% CAGR in FY18-21E
19000 0.18 2200 14%

17000 0.16 12%
15000 0.14 1800
10%
13000 0.12
(Rs mn)
(Rs mn)
11000 0.1 1400 8%
9000 0.08 6%
1000
7000 0.06
4%
5000 0.04 600
3000 0.02 2%
1000 0 200 0%
Revenue yoy EBIT EBIT Margin
94

Earnings at Risk
©
Category expansion key to outpace peers
 Fast-paced product launches and entry into new categories key to outpace industry: Although management has stated
its intent of launching 1 new product across the categories while timely launches of the same holds key in the highly
competitive market. Further, it should also focus on entering newer categories like Switches and Switchgears as these
products can be sold from the same channel of the existing ECD segment.
Revenue CAGR from FY12-18 for various companies
22.0%
17.5% Crompton Consumer has seen lowest revenue growth
18.0%
among the peers on slower product launches and
14.0% 12.8% 13.1% restricting from entering newer product categories
11.4%
* Havells FY18 Revenue is Ex of Lloyds
10.0%
6.0%
2.0%
Havells Ex wires Crompton Vguard Orient
and Cables
 On a comparable basis, Crompton has been lagging growth as compared to peers, due to slower product launches, as it has
not ventured into any new product category. In wake of rising competition across the categories, the company will have to
venture into new categories to sustain long-term, double-digit revenue growth.
95

Earnings at Risk
©
Key charts
Revenue to see 13% CAGR in FY18-21E Product innovation has lead gross margin expansion
70,000 20% 22,000 34%

17,000 32%
15%
(Rs mn)
(Rs mn)
50,000 30%
10% 12,000
28%
30,000 7,000
5% 26%
10,000 0% 2,000 24%
Revenue Revenue growth Gross Profit Gross Profit Margin
Gross margin expansion and cost optimization to drive EBITDA growth Industry leading RoE and RoCE’s
9,000 14% 60%
7,000 13% 50%
(Rs mn)
40%
5,000 12%
30%
3,000 11% 20%
1,000 10% 10%
RoE RoCE
EBITDA EBITDA Margin
OCF and FCF to improve on limited capex

6,000 Number of In-house
Company Locations
locations production
5,000
(Rs mn)
4,000 Kundaim (Goa), Bethora (Goa), Baroda

3,000 (Gujarat), Ahmednagar (Maharashtra),
2,000
Crompton 8 Ahmednagar (Maharashtra), Baddi ~55%-60%
1,000
FY16 FY17 FY18 FY19E FY20E FY21E (Himachal Pradesh), Baddi
(Himachal Pradesh)
OCF FCF Baddi (Himachal Pradesh)

Earnings at Risk
©
Valuation charts
One-year forward EV/EBITDA One-year forward P/B

350 400
30x 18x
300 350
26x 16x
300
250 14x
22x
250 12x
200 18x
200
150 150
100 100
Jul-18
Aug-16
Jun-17
Aug-17
Jan-19
Oct-16
Dec-16
Apr-17
Oct-17
Dec-17
Sep-18
Nov-18
May-16
Feb-17
Mar-18
May-18
Jul-18
Jun-17
Nov-18
Jan-19
Aug-16
Oct-16
Dec-16
Dec-17
Apr-17
Aug-17
Oct-17
Sep-18
Feb-17
Mar-18
May-16
May-18
One-year forward PE
300 43x
38x
250
33x
200 28x
150
100
Jul-18
Aug-16
Jun-17
Aug-17
Sep-18
Oct-16
Dec-16
Nov-18
Jan-19
Feb-17
Apr-17
Oct-17
Dec-17
Mar-18
May-16
May-18

97
Earnings at Risk
Emkay
Earnings at Risk
©

Revenue 39,009 40,797 45,138 51,716 58,221 PBT (Ex-Other income) (NI+Dep) 2,923 4,292 5,166 6,263 7,140
EBITDA 3,689 5,056 5,930 7,033 7,918 Chg in working cap (417) (1,021) 4 (96) (58)
Depreciation 110 126 127 133 140 Operating Cashflow 3,126 3,154 4,070 4,641 5,193
EBIT 3,578 4,930 5,804 6,901 7,778 Capital expenditure (145) (132) (100) (100) (100)
Other Income 195 308 432 633 867 Free Cash Flow 2,980 3,022 3,970 4,541 5,093
Interest expenses 655 637 637 637 637 Investments (3,189) (487) 0 0 0
PBT 3,118 4,600 5,598 6,896 8,007 Other Investing Cash Flow (54) (19) 49 0 0
Tax 1,419 1,617 1,864 2,296 2,666 Investing Cashflow (3,193) (331) 381 533 767
Extraordinary Items (25) 0 0 0 0 Equity Capital Raised 0 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0 Loans Taken / (Repaid) 548 (126) 0 0 0
Reported Net Income 1,674 2,983 3,734 4,600 5,341 Dividend paid (incl tax) 0 (1,132) (1,305) (1,607) (1,866)
Adjusted PAT 1,699 2,983 3,734 4,600 5,341 Other Financing Cash Flow 216 (880) (2,508) (2,929) (3,457)
Financing Cashflow 108 (2,775) (4,451) (5,174) (5,960)
Balance Sheet Net chg in cash 41 49 0 0 0
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Opening cash position 900 697 1,774 4,233 7,162
Equity share capital 1,254 1,254 1,254 1,254 1,254 Closing cash position 697 1,774 4,233 7,162 10,619
Net worth 5,178 7,895 10,324 13,316 16,791

Loan Funds 7,152 7,026 7,026 7,026 7,026 Profitability (%) FY17 FY18 FY19E FY20E FY21E
Net deferred tax liability (295) (479) (479) (479) (479) EBITDA Margin 9.5 12.4 13.1 13.6 13.6
Investment 3,189 3,676 3,676 3,676 3,676 Net Margin 4.4 7.3 8.3 8.9 9.2
Cash & bank balance 697 1,774 4,233 7,162 10,619 ROE 45.5 45.6 41.0 38.9 35.5
Other Current Assets 0 0 0 0 0 RoIC 44.5 57.5 64.7 76.8 86.1
Net current assets 231 2,145 4,601 7,626 11,140
Misc. exp 0 0 0 0 0
Total Assets 12,035 14,443 16,872 19,864 23,338
98

Earnings at Risk
©
EPS 2.7 4.8 6.0 7.3 8.5 Revenue 115.3 4.6 10.6 14.6 12.6
CEPS 2.9 5.0 6.2 7.5 8.7 EBITDA 141.3 37.1 17.3 18.6 12.6
BVPS 8.3 12.6 16.5 21.2 26.8 EBIT 144.0 37.8 17.7 18.9 12.7
DPS 0.0 1.8 2.1 2.6 3.0 PAT 244.4 78.2 25.2 23.2 16.1
PER 82.1 46.8 37.4 30.3 26.1 Revenue 9,597 9,382 11,263 12,039 10,378
P/CEPS 78.6 45.8 36.9 30.1 26.0 EBITDA 1,207 1,165 1,645 1,673 1,239
EV / Sales 3.7 3.5 3.1 2.6 2.3 PAT 708 695 1,032 1,043 769
EV / EBITDA 38.7 27.9 23.4 19.3 16.7 EPS (Rs) 1.1 1.1 1.6 1.7 1.2
Dividend Yield (%) 0.0 0.8 0.9 1.2 1.3 Source: Company, Emkay Research
Shareholding Pattern (%) Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Gearing Ratio (x) FY17 FY18 FY19E FY20E FY21E Promoters 34.4 34.4 34.4 34.4 34.4
Net Debt/ Equity 0.6 0.2 (0.1) (0.3) (0.4) FIIs 35.1 36.3 34.8 33.0 32.9
Net Debt/EBIDTA 0.9 0.3 (0.1) (0.5) (0.9) DIIs 14.6 14.2 15.5 16.7 16.7
Working Cap Cycle (days) (4.4) 3.3 3.0 3.3 3.3 Public and Others 15.9 15.1 15.4 16.0 16.0
Source: Capitaline
99

Earnings at Risk
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Dixon Technologies (India)
Buy, Target Price Rs2,631 On the right path of growth, margins to improve
Continued customer addition to drive sustainable growth: DIXON’s strengths in outsourced production for OEMs have
helped it add new customers (22 additions in last 12 months) across key business segments. Home Appliances, Consumer
Electronics, and Lighting should remain the key revenue growth drivers. Mobile revenue, on the other hand, is expected to
remain volatile till the company gets dominant player on board (it does not cater to the Top-10 brands). We estimate DIXON’s
revenue to see 16% CAGR from (FY18-21E).
High dependence on few customers in key segments: The consumer appliance segment has seen high competitive
intensity; however, strong volume from Xiaomi’s will offset the impact of any market loss of existing customer in the TV
segment. Samsung’s on-boarding has led to strong growth in the Home appliance segment and the same could continue with
potential new customer addition like Voltas Beko’s (focus is on Semi-automatic washing machines) along with untapped
volumes. We are estimating volume growth of 29% over FY18-21E.
Home appliance margins to stabilize while lighting to see expansion: Dixon’s margin expansion story, which played out
until FY18, halted in FY19 due to a rise in raw material costs, INR depreciation and longer period contracts for cost reset with
OEMs. However, margins are likely to stabilize and improve from Q4FY19 onward with costs reset and learnings from
Samsung contract for better terms with new customers. We expect lighting & mobile segment should see a margin expansion.
Capacity expansion and backward integration to marginally aid margin expansion: DIXON has expanded capacity in
washing machines and LED TVs. It has also undertaken backward integration of LCM and surface mount line for LED TVs. We
expect DIXON’s EBITDA margin to be 4.3%/4.4%/4.6% in FY19E/FY20E/FY21E, driven by economies of scale in key
categories. Backward integration of PCB in mobile segment will also provide margin kicker from Q3FY19 itself.
Outlook and valuations: We expect Revenues/EBITDA/PAT to grow at a CAGR (FY18-21E) of 16%/22%/18%. We initiate
coverage with BUY rating and TP of Rs2631 (15x FY21 EV/EBITDA). Risks to our call: 1) lower realisations from big brands to
restrict margin expansion, 2) significant market share loss of large customer, 3) in-ability to pass on full impact of cost inflation
to OEM’s. 100

Earnings at Risk
©
Lighting key driver for margins
 Consumer electronics - in growth phase: With the recent addition of Xiaomi (MI) as a new customer, Dixon is expected to
deliver healthy volume growth over the next few quarters. MI’s volumes are expected to ramp up to 100K TV/month vs. the
current run rate of 23K. If MI is able to gain healthy market share then, volume uptick could be further higher. Currently, Dixon
has strong 50% market share in TV EMS segment and it can manufacture from screen size of 19” to 65”. It has also
expanded capacity to now 2.4mn units annually (post the full expansion of the Tirupati plant) vs. 1.2mn earlier. EBITDA
growth is expected to be healthy with better realization from new customers, healthy volume growth and backward
integration. PCB manufacturing and LCM augur well for margin expansion.
Consumer electronics EBITDA to outperform revenue growth on

Consumer electronics revenue to record 20% CAGR in FY18-21E margin expansion
21000 30% 550 4%

25%
17000 450
20% 3%
(Rs mn)
(Rs mn)
15% 350
13000 2%
10% 250
9000 5% 1%
150
0%
5000 -5% 50 0%
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Revenue yoy EBITDA EBITDA Margin
101

Earnings at Risk
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Cost resets and stability in inputs to aid margin expansion
 Home appliances - on track to deliver sustained volume growth: Dixon enjoys healthy market share of 43% in the
Washing machine category with the nearest competitor Noble at 28%. Its scale of operations and proven track record have
led to the addition of Samsung to its client list (in Q2FY18) for SM machines. As per management, it manufacturers ~30% of
total SM machines sold by Samsung, indicating scope for a further ramp-up in the future. Venturing into Fully Automatic
Washing Machines would drive next phase of revenue growth for the category. Management is targeting to introduce designs
and models in H2FY20 while client addition and revenue accretion would take another year after that. Therefore, we are not
expecting revenues from FA machines in FY21 as well.
Home Appliances revenue to see 30% CAGR in FY18-21E Home Appliances EBITDA to lag revenue growth on lower margins
6500 50% 700 18.0%
45% 600 16.0%
5500
40% 14.0%
500
4500 35%
12.0%
(Rs mn)
(Rs mn)
30% 400
3500 10.0%
25% 300
8.0%
2500 20%
200
15% 6.0%
1500 100
10% 4.0%
500 5% 0 2.0%
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
102

Earnings at Risk
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Lighting - New customer additions to drive outperformance
 Lighting: Dixon has added a slew of new customers in lighting segment with large brands such as Wipro, Bajaj, Orient, and
Syska. Replacement demand for CFL and new customer addition will fuel growth for Dixon. In addition, its expanded capacity
at the Tirupati plant could also attract export opportunities in in medium- to long term. The scale of operations and backward
integration should drive margin improvement. The phase-out of CFL should get offset by strong volume growth in LED
segment and should result in ~17% revenue CAGR growth from FY18-21E. Dixon is expected to grow faster than industry,
driven by new customer additions and growth in non-bulb categories like batten and down-lighters.
Dixon has demonstrated strong customer addition trajectory Dixon Capacity across various segments
Segment Period Customer Addition Current Capacity Future Capacity
Segment (Monthly) (Monthly)
Crompton Greaves, Wipro, Panasonic and
2QFY18 (Units Lacs) (Units Lacs)
Anchor
4QFY18 Jaguar, Usha LED TV 2 2.9
Lighting
1QFY19 Syska, Orient Lighting 140 160
2QFY19 Ajanta, RR Kabel & Polycab
Home appliance (semi Automatic) 1 1
2QFY18 Samsung, Flipkart (MarQ)
Home Appliance CCTV 5 8
3QFY18 Lloyd and Micromax
DVR 1 1.5
2QFY18 Flipkart (MarQ)
3QFY18 Skyworth
Consumer Electronics 4QFY18 TCL
1QFY19 iFFALCON
2QFY19 Xiaomi
3QFY18 Blaupunkt
Mobile Phones
4QFY18 Tambo
103

Earnings at Risk
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Margins to reverse with cost stability
 Capacity expansion and capex spends to continue in FY20: Over the last 12-18 months, the company invested
~Rs800mn in the Tirupati facility to expand capacity across major segments. With the pick-up in volumes in TV, Washing
Machines and LED along with the backward integration of the LCM capacity, margins are expected to improve going forward.
We are factoring capex spends of ~Rs650mn in FY20E, similar spends are baked in for FY19E.
 The volatility in the INR and commodity prices affect margins: Over the last 2-3 quarters, both the INR and commodity
prices have been adversely affecting the performance as the company has not been able to pass on the cost inflation to
customers due to contract structure. Until FY18, the company had enjoyed the benefit of lower commodity and stability in the
INR, while the adverse movement in the currency has impacted performance. With the stabilization in both crude and the
INR, the company should be able to pass on the cost inflation to customers in the next round. We believe that Dixon will be
able to deliver a margin improvement if the above factors are stable or trending downward.
Dixon’s margin in home appliances has declined from 23.6% in Polypropylene prices has eased from recent highs can lead to margin
3QFY17 to 8.1% in 2QFY19 expansion
26 120 1800
100
1400
21
80
(USD)
(USD)
1000
16 60
(%)
600
40
11
20 200
9/1/2012
3/1/2013
6/1/2013
9/1/2013
3/1/2014
6/1/2014
9/1/2014
3/1/2015
6/1/2015
9/1/2015
3/1/2016
6/1/2016
9/1/2016
3/1/2017
6/1/2017
9/1/2017
3/1/2018
6/1/2018
9/1/2018
12/1/2012
12/1/2013
12/1/2014
12/1/2015
12/1/2016
12/1/2017
12/1/2018
6
1
3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19
Crude Polypropelene
Source: Company, Emkay Research Source: Bloomberg, Emkay Research

104

Earnings at Risk
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Margin impacted by adverse INR and input costs
Home appliances margin has declined on higher polypropylene
ODM Share lighting products has improved to 65%
prices
25 120
20 100
80
15
(%)
(%)
60
10
40
5 20
0
0
Home Appliances EBITDA margin EBITDA Margin Consumer Electronics Lighting Products Home Appliances
Dixon has high ODM/EMS market share across categories
38.9%
50.4%
42.6%
Television Washing machine LED and CFL lights

105

Earnings at Risk
©
Backward integration to aid mobile business margins; revenue growth yet to come
back
 Mobile - sustained growth struggle continues: The mobile segment has suffered heavily due to slowdown from its key
client Gionee in FY18 and H1FY19. There was hope of volume revival from Gionee but recent news-flow suggests that
Gionee is on the stage of filing for bankruptcy. Dixon does not have any marquee client for Mobile or none of its customer
features in top-10 selling brands in the country. Recently, it has added Tambo as a new customer for feature phones. We
believe the struggle for healthy growth (after the slump in FY19) would continue going forward while management remains
bullish on growth prospects over the next two years. It is backward integrating with setting of PCB facility and also getting
into mobile accessories segment like batteries and earphones.
Mobile phone segment is hampered as key client is facing slowdown Backward integration to help in margin improvement in Mobile phones
8500 40% 170 3.0%

7500 30%
2.5%
6500 20% 130
10% 2.0%
5500
(Rs mn)
(Rs mn)
0%
4500 90 1.5%
-10%
3500
-20% 1.0%
2500 -30% 50
0.5%
1500 -40%
500 -50% 10 0.0%
FY17 FY18 FY19E FY20E FY21E FY17 FY18 FY19E FY20E FY21E
Market share of establish customer could add pain for Dixon: Panasonic is one of the key customer for Dixon in Washing
Machine and TV. Aggression from MI in TV segment could result into loss of market share for Panasonic, which could directly
impact the volumes of Dixon. In Washing Machine category, entry of Voltas Beko will increase the competitive intensity for both
Mid Sized and fringe players (like T-Series and Mircromax). Loss of share of these players will have direct impact on Dixon.
Moreover, recent draft E-Commerce policy has stated that players like Flipkart and Amazon cannot sell private labels, if
implemented then, Dixon’s growth will get impacted as MarQ (brand of Flipkart) will have shelve its plans.
106

Earnings at Risk
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EMS/ODM Market − Dixon’s dominant market share to benefit from strong growth
India EMS/ODM market is estimated to see 32% CAGR in FY18-21E Market share of key EMS/ODM players
600 35%
500 30% 12.6%

25%
400
9.3%
(Rs bn)
20%
300
15% 6.5%
200
10% 66.3% 3.2%
100 5% 1.9%
0 0%
Jabil Dixon SFO Elin PG Electroplast Others

India EMS/ODM YoY
TV EMS/ODM market is estimated to see 37% CAGR in FY18-21E Market share of key EMS players in Television
12 150%
11
130%
10 17.6%
9 110%
8
90%
(Units mn)
7
6 70% 6.7%
5
50% 50.4%
4 8.4%
3 30%
2
10% 8.4%
1
0 -10%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 8.4%
Volume YoY Dixon MEPL SVL Videotex Noble Others
107

Earnings at Risk
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EMS/ODM Market − Dixon’s dominant market share to benefit from strong growth
Washing machine EMS/ODM market is estimated to see 42% CAGR in
Market share of key EMS/ODM Players in washing machine
FY18-21E
4.0 250%
3.5
200%
3.0
32.8%
(Units mn)
2.5 150% 42.6%

2.0
1.5 100%
1.0
50%
0.5 24.6%
0.0 0%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Dixon Noble Others
Volume YoY
LED market is estimated to see 31% CAGR in FY18-21E Market share of key EMS/ODM Players in LED lighting
1600 80%
3.3%
1400 70%
1200 60%
1000 50%
(Units mn)
27.7% 38.9%
800 40%
600 30%
400 20%
200 10%
0 0% 30.1%
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Dixon NTL Compact Lamps Others

Volume YoY
108

Earnings at Risk
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Story in charts
Revenue contribution from consumer Electronics and Lighting to remain strong Revenue is estimated to see 16% CAGR in FY18-21E
110% 52000 85%

42000 65%
32000
45%
(Rs mn)
60% 22000
12000 25%
2000 5%
10%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Consumer Electronics Lighting Products Home Appliances
Mobile Phones Reverse Logistics Revenue Revenue Growth
EBITDA to see 22% CAGR in FY18-21E on margin expansion PAT to record 18% CAGR in FY18-21E
2500 5% 1500 4%
2000 4% 3%
1000
(Rs mn)
(Rs mn)
1500 3% 2%
1000 2% 500 1%
500 1% 0%
0
0 0% -1%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E -500 -2%
EBITDA EBITDA Margin PAT PAT Margin

Healthy FCF generation is estimated from FY21, as major capex cycle will
RoE & ROCE to remain stable from FY18-21E
be over
35% 1500
1000
25%
(Rs mn)
500
15%
0
5% FY18 FY19E FY20E FY21E
FY18 FY19E FY20E FY21E -500
-1000
RoE RoCE OCF FCF

Earnings at Risk
©

Revenue 24,570 28,416 30,897 38,549 44,566 PBT (Ex-Other income) (NI+Dep) 650 841 824 1,091 1,401
EBITDA 912 1,127 1,332 1,700 2,055 Chg in working cap (1,026) (383) (871) (517) (424)
Depreciation 107 152 187 232 277 Operating Cashflow 529 680 137 749 1,095
EBIT 805 975 1,145 1,468 1,778 Capital expenditure (1,492) (716) (671) (665) (665)
Other Income 14 42 138 129 129 Free Cash Flow (964) (36) (534) 84 430
Interest expenses 155 135 321 377 377 Investments 0 (111) 0 0 0
PBT 664 882 962 1,220 1,530 Other Investing Cash Flow 1,044 (211) 0 0 0
Tax 188 273 318 415 520 Investing Cashflow (434) (997) (533) (536) (536)
Minority Int./Income from Assoc. 0 0 0 0 0 Loans Taken / (Repaid) 467 (21) 700 200 0
Reported Net Income 476 609 645 805 1,010 Dividend paid (incl tax) 0 0 (27) (54) (82)
Adjusted PAT 476 609 645 805 1,010 Other Financing Cash Flow (489) 596 133 109 105
Financing Cashflow (67) 444 485 (123) (353)
Balance Sheet Net chg in cash 27 127 89 90 206
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Opening cash position 0 27 127 89 90
Equity share capital 110 113 113 113 113 Closing cash position 27 127 89 90 206
Net worth 1,971 3,150 3,767 4,518 5,446

Loan Funds 467 446 1,146 1,346 1,346 Profitability (%) FY17 FY18 FY19E FY20E FY21E
Net deferred tax liability (3) 41 41 41 41 EBITDA Margin 3.7 4.0 4.3 4.4 4.6
Cash & bank balance 27 127 89 90 206 ROE 48.3 23.8 18.6 19.4 20.3
Other Current Assets 726 1,299 1,373 1,585 1,751 RoIC 67.4 34.4 29.0 28.8 29.7
Misc. exp 0 0 0 0 0
Total Assets 2,435 3,637 4,954 5,905 6,833
110

Earnings at Risk
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EPS 42.0 53.8 56.9 71.1 89.2 Revenue 0.0 15.7 8.7 24.8 15.6
CEPS 51.5 67.2 73.4 91.6 113.6 EBITDA 0.0 23.5 18.2 27.7 20.9
BVPS 174.0 278.1 332.6 398.9 480.9 EBIT 0.0 21.1 17.4 28.2 21.1
DPS 0.0 0.0 2.0 4.0 6.0 PAT 0.0 28.0 5.8 24.9 25.4
PER 51.9 40.5 38.3 30.7 24.5 Revenue 8,788 6,803 5,978 5,927 7,389
P/CEPS 42.4 32.4 29.7 23.8 19.2 EBITDA 353 286 274 260 330
EV / Sales 1.0 0.9 0.8 0.7 0.6 PAT 207 153 141 128 164
EV / EBITDA 27.5 22.1 19.2 15.2 12.5 EPS (Rs) 18.3 13.5 12.5 11.3 14.5
Shareholding Pattern (%) Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Net Debt/ Equity 0.2 0.1 0.3 0.3 0.2 FIIs 8.4 8.9 9.9 8.6 7.0
Net Debt/EBIDTA 0.5 0.2 0.7 0.7 0.5 DIIs 22.4 23.2 16.9 19.1 26.7
Source: Capitaline
111

Earnings at Risk
©
Havells India
HOLD, Target Price Rs709 Best-in-class execution but rich valuation
Category expansion, market share gains drive superior growth: HAVL’s strategy in expanding product portfolio,
distribution expansion has been working in favor of the company with healthy revenue growth, market share gains across the
categories, and outperformance compared with competitors. We estimate revenue growth of 17% over FY18-21E, driven by
Lloyd and ECD segments. To control quality and delivery, HAVL has always done in-house manufacturing of its products. The
strategy is replicated for Lloyd, with a plan to set up AC manufacturing. HAVL is also targeting for in-house manufacturing of
refrigerators over the next 24 months.
Channel expansion and brand strengthening to provide next leg of growth in Lloyd: In the last few quarters, HAVL has
been focusing on channel expansion and increasing its reach among regional MBOs, as well as expanding presence into
Metros and Tier-I towns. Brand transformation from Mass to Premium is key from a consumer acceptance point of view to drive
near-term growth, while long-term industry growth, premiumization, capabilities to gain market share gains, and increased
distribution reach should aid top-line growth. Rise in competitive intensity from Haier and Voltas Beko will be closely tracked for
Lloyds market share sustenance. We expect Lloyd to record revenue CAGR of 24% over FY18-21E.
B2B focus to further help drive growth: To drive sustained growth, HAVL is now expanding in B2B segment for switchgears
where it wants to increase the share of non-residential to 30% in next three years from the current <10%. Switchgear has been
underperforming and it could be attributable to the weak macro environment. However, we expect a rebound and estimate 14%
revenue CAGR (FY18-21E). HAVL has added manpower aggressively over the past few quarters, but the results are yet to be
seen.
Outlook: We expect consolidated revenues, EBITDA and PAT to see a CAGR of 17%, 21% and 21%, respectively, for FY18-
21E. Downgrade rating to HOLD, with a TP of Rs709 (35x FY21E EPS), due to recent run-up and now valuations leaves
limited room for error. Risks to our call: 1) longer-than-expected time for economic improvement; 2) weaker-than-expected
execution in Lloyd; and 3) adverse INR and commodity movement.
112

Earnings at Risk
©
Lloyds - Right focus; strategy yet to bear fruits
Channel expansion and brand strengthening to provide next leg of growth in Lloyd: In the last few quarters, HAVL has
been focusing on channel expansion and increasing its reach among regional MBOs, as well as expanding presence into Metros
and Tier-I towns. Brand transformation from Mass to Premium is key from a consumer acceptance point of view to drive near-
term growth, while long-term industry growth, premiumization, capabilities to gain market share gains, and increased distribution
reach should aid top-line growth. In order to achieve the same marketing and brand strengthening will continue for longer period
of time Rise in competitive intensity from Haier and Voltas Beko will be closely tracked for Lloyd’s market share sustenance.
Revenue growth to remain healthy with new product launches EBIT margin expansion to be driven by in-house production of RAC
30,000 40% 6,500 23%

22%
35%
5,500 22%
25,000
30% 21%
4,500 21%
25%
Rs mn
20,000 20%
20% 3,500
20%
15,000 15% 2,500 19%
19%
10% 18%
10,000 1,500
5% 18%
500 17%
5,000 0% FY18 FY19E FY20E FY21E
FY18 FY19E FY20E FY21E
Revenue Growth EBIT EBIT Margin
113

Earnings at Risk
©
Lloyd – Sustaining market share is key
Lloyd has seen market share gains across the categories over the last three years, with maximum gains in RAC. The gains are
attributable in part to its aggressive distribution expansion in non-metros and higher margins given to distributors (before Havell’s
acquisition). Havell has aligned the distribution reach strategy and has also implemented uniform dealer/distribution
commissions, which did not result in any notable market share erosion. Increasing competition from Haier and potential rise in
competitive intensity post full-fledged launch by Voltas Beko will be closely watched. Haier has upped the ante in rural distribution
and has decided to set up an RAC plant, which should increase the competitive in the most-competitive Durable category.
Revenue growth to remain healthy with new product launches
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
FY16 FY17 FY18
Television Washing machine RAC
114

Earnings at Risk
©
Product offerings and market positioning
Market Size
Category Product Market Share Key Players
(Rs mn)
MCB 22,000 28% Havells, Legrand, Schneider

Switchgears
Switches 22,000 15% Havells, Panasonic, Legrand
Domestic 80,000 16% Finolex, Havells, Polycab, KEI

Cable
Industrial 1,20,000 10% Finolex, Havells, Polycab, KEI
LED Lighting Lighting & Fixtures 65,000 14% Philips, Crompton, Bajaj, Wipro, Havells
Fans 69,000 16% Crompton, Orient, Usha, Havells, Bajaj
Small Appliances Water Heaters 14,000 15% Racold, AO Smith, Havells, Crompton, Bajaj, V-Guard
Other appliances 52,000 3% Bajaj, Philips, Havells. V-guard
Washing machine 90,000 NA IFB Industries, LG, Samsung, Whirlpool, Panasonic
Refrigerator 2,30,000 NA LG, Samsung, Whirlpool, Godrej, Haier

Consumer durable
RAC 1,45,000 11% Voltas, Bluestar, Lloyds, LG, Daikin
LED television 4,00,000 2% Samsung, LG, Panasonic
115

Earnings at Risk
©
Story in charts - Superior growth historically, expected in the future as well
Revenue contribution of Cables to reduce from 44% in FY12 to 30% in FY21E Revenue is estimated to see 17% CAGR in FY18-21E
110% 152000 40%
(Rs mn)
30%
102000
60% 20%
52000
10%
2000 0%
10%
FY19E
FY20E
FY21E
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Switchgears Cables Lighting and fixtures
Electrical consumer durable Lloyds Consumer Revenue Revenue growth
EBITDA to see 21% CAGR in FY18-21E with stable margin PAT is likely to see 21% CAGR in FY18-21E in line with EBITDA growth
22000 15% 17000 60%

40%
(Rs mn)
14%
17000 12000
(Rs mn)
14% 20%
7000 0%
12000 13%
-20%
13% 2000 -40%
7000
12%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
2000 12%
EBITDA EBITDA Margin PAT YoY
RoE & ROCE is estimated to reach 23.1% and 28.3% in FY21E Strong FCF generation despite investments into new production units
30% 15000
25% 10000
(Rs mn)
20% 5000
0
15%
-5000
10%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E -10000
RoE RoCE OCF FCF

Earnings at Risk
©
Ad spends to remain high with brand strengthening of Lloyd
Advertisement spends as % of sales to remain in 3.5%-3.7% range

5000 4.0%
4500
Advertisement spends are expected to remain at current
3.5%
4000 3.0% levels, despite healthy revenue growth. Brand strengthening
3500
(Rs mn)
2.5%
3000 and distribution expansion for Lloyd would have higher
2.0%
2500
1.5% requirement for ad spends. Further, continued new product
2000
1500 1.0% launches and distribution expansion will also keep ad spends
1000 0.5%
500 0.0%
intact.
Advertisement spends As % Sales
Company Number of locations Locations In house Production
Alwar (Rajasthan), Neemrana
(Rajasthan), Baddi (Himachal Pradesh),
Havells 7 Faridabad (Haryana), Haridwar ~90%
(Uttrakhand), Sahibabad (Uttar Pradesh),
and Guwahati (Assam)
117

Earnings at Risk
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Category expansion and product launch timelines
Year Product launches
1977 Rewirable Switches and Changeover Switches
1979 HBC Fuses
1985 MCBs
1992 Control Gear Products
1996 MCCB, Cables & Wires
1997 Crabtree wiring accessories
2003 Fans, Lighting
2005 Premium Fans
2010 Water Heaters
2011 Domestic Appliances, Pumps
2012 Copper Flexible Cables under the Standard brand, Launched Crabtree, piano switches under REO brand XPRO Switchgear
2015 LED Lighting
2016 Air Coolers, home automation and control in Crabtree brand, Solar street lights
2017 Personal grooming products, Water Purifier, Air conditioners, LED televisions and washing machines through the Lloyd acquisition
118

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Valuation charts – Trading in the premium range

700 800
26x
600 700 9x
21x 600
500 7x
500
400 16x
400 5x
300 11x 300
3x
200 200
100
100
0
Jan-13
Jun-13
Nov-13
Jan-16
Jun-16
Nov-16
Jan-19
Apr-11
Oct-11
Aug-12
Apr-14
Sep-14
Aug-15
Apr-17
Sep-17
Aug-18
Mar-12
Mar-15
Feb-18
0
Jul-10
Jul-18
Jan-10
Dec-10
Aug-12
Jan-13
Jun-13
Oct-11
Mar-12
Nov-13
Aug-15
Jan-16
Jun-16
Sep-17
Dec-18
May-11
Apr-14
Oct-14
Mar-15
Nov-16
Apr-17
Feb-18
One-year forward PE
700 41x
600
500 31x
400
21x
300
200 12x
100
0
Jan-13
Jun-13
Nov-13
Jan-16
Jun-16
Nov-16
Jan-19
Apr-11
Oct-11
Aug-12
Apr-14
Sep-14
Aug-15
Apr-17
Sep-17
Aug-18
Mar-12
Mar-15
Feb-18

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Earnings at Risk
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EBITDA 8,241 10,493 12,434 15,617 18,544 Chg in working cap 1,104 3,974 (636) (867) (1,204)
Depreciation 1,196 1,395 1,582 1,748 1,914 Operating Cashflow 7,778 11,077 8,300 10,308 11,972
EBIT 7,045 9,098 10,852 13,869 16,630 Capital expenditure (1,328) (16,732) (5,069) (2,569) (2,569)
Other Income 1,343 1,170 1,145 1,309 1,672 Free Cash Flow 6,450 (5,655) 3,231 7,739 9,403
Interest expenses 122 240 253 264 277 Investments 15 3,494 0 0 0
PBT 8,266 10,028 11,744 14,914 18,025 Other Investing Cash Flow (2,305) 2,051 0 0 0
Tax 2,298 3,022 3,497 4,441 5,368 Investing Cashflow (2,275) (10,017) (3,925) (1,260) (897)
Extraordinary Items (578) 119 0 0 0 Equity Capital Raised 0 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0 Loans Taken / (Repaid) 1,537 (901) 58 53 56
Reported Net Income 5,390 7,125 8,246 10,472 12,657 Dividend paid (incl tax) (2,256) (2,633) (3,474) (4,411) (6,094)
Adjusted PAT 5,968 7,006 8,246 10,472 12,657 Other Financing Cash Flow 14,713 17,976 15,262 15,968 20,394
Financing Cashflow 13,872 14,202 11,593 11,346 14,080
Balance Sheet Net chg in cash 19,375 15,262 15,968 20,394 25,155
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Opening cash position 13,652 19,375 15,262 15,968 20,394
Equity share capital 625 625 625 625 625 Closing cash position 19,375 15,262 15,968 20,394 25,155
Net worth 32,736 37,392 42,164 48,225 54,789

Loan Funds 1,981 1,080 1,138 1,191 1,247 Profitability (%) FY17 FY18 FY19E FY20E FY21E
Net deferred tax liability 1,138 2,070 2,570 2,570 2,570 EBITDA Margin 13.4 12.9 12.6 13.6 14.1
Cash & bank balance 19,375 15,262 15,968 20,394 25,155 ROE 19.2 20.0 20.7 23.2 24.6
Misc. exp 0 0 0 0 0
Total Assets 35,854 40,541 45,871 51,986 58,606
120

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EPS 9.6 11.2 13.2 16.8 20.2 Revenue 14.1 32.7 21.4 16.3 14.8
CEPS 11.5 13.4 15.7 19.5 23.3 EBITDA 9.2 27.3 18.5 25.6 18.7
BVPS 52.4 59.8 67.5 77.1 87.6 EBIT 8.4 29.1 19.3 27.8 19.9
DPS 3.0 3.5 4.6 5.9 8.1 PAT (24.3) 32.2 15.7 27.0 20.9
PER 70.8 60.3 51.2 40.4 33.4 Revenue 17,774 19,658 25,349 25,963 21,910
P/CEPS 59.4 50.7 43.3 34.9 29.2 EBITDA 2,569 2,622 3,577 3,123 2,625
EV / Sales 6.6 5.0 4.1 3.5 3.0 PAT 1,710 1,944 2,258 2,104 1,786
EV / EBITDA 48.9 38.9 32.7 25.8 21.5 EPS (Rs) 2.7 3.1 3.6 3.4 2.9

Net Debt/ Equity (0.6) (0.4) (0.4) (0.4) (0.4) FIIs 25.0 24.9 24.8 25.8 26.5
Net Debt/EBIDTA (2.4) (1.4) (1.2) (1.3) (1.3) DIIs 3.7 5.1 5.2 5.2 4.7
Working Cap Cycle (days) (2.1) (15.2) (8.3) (4.4) (0.5) Public and Others 9.7 10.4 10.4 9.5 9.2
Source: Capitaline
121

Earnings at Risk
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V-Guard Industries
REDUCE, Target Price Rs187 Non-South key driver of revenue and margin
New product category expansion offers growth potential: VGRD’s entry into new product categories like Switchgears,
Modular switches, Kitchen appliances, and Air coolers offers strong revenue potential and we estimating these categories to
contribute ~Rs3.3bn by FY21E vs Rs1.2bn in FY18. Switchgear and kitchen appliances market size is estimated to be
Rs183bn and Rs85bn, respectively, of which only 50% is organized. Since its launch, Kitchen appliances and Switchgear have
grown at 28% and 25% CAGR (FY16-18), respectively. With expansion in distribution network in non-south , both these
categories are likely to see 30% and 37% CAGR in FY18-21E.
Non-South market one of the key drivers of growth: VGRD has been focusing on growing its network (dealership, brand
identity, and distribution) in non-South markets. Its distributor network in non-South has grown from 97 in FY11 to 445 in FY17.
VGRD has invested heavily in re-branding in FY18 to strengthen its brand and gain traction in non-South markets, off late non-
South market has seen higher growth compared with southern market (Fans/Stabilizers/UPS/Pumps has seen increased
traction in non-South). Non-South revenue has grown by 26% CAGR vs.11% CAGR from South in (FY12-FY18) taking its non-
South revenue to 37% in FY18 from 21% in FY12. We believe with key infrastructure in place, non-South markets will continue
to register healthy growth. VGRD’s endeavour is to grow its non-South revenue to 50% in next 5 years.
Margin improvement a thrust area: In pursuit of improving gross margins, the company has taken steps including 1) starting
In-house designing, 2) launching new products with higher gross margin, and 3) improving product mix (introducing premium
SKU’s in non-South market). The steps taken has improved gross margins from levels of 25.5% in FY14 to 30.4% in FY18. We
estimate gross margins to further improve by 80bps to 31.2% by FY21 vs 30.4% in FY18.
Outlook: We expect revenues, EBITDA and PAT to grow at a CAGR of 13%, 22% and 23% respectively over FY18-21E.
Success of new product launches offer potential upsides to our growth estimates in FY21E along with margin traction in non-
south. We initiate coverage with REDUCE rating and a target price of Rs187 (32x PE FY21 EPS), as valuations are factoring
most of the positive. We believe current valuations factoring most of the positives. Risks to our call: 1) shorter-than-expected
time for non-South margin expansion, 2) market share gains, 3) higher than expected success of new products. 122

Earnings at Risk
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New launches reducing dependency on legacy products
New product launches reducing dependency on legacy products: V-Guard has been entering new categories and launching
new products, which is reducing dependency on the legacy product segments like Stabilizers, Water Pumps, Water Heaters and
Wires & Cables. New categories like switchgears (FY16), Modular switches (FY18), Kitchen appliances has seen (FY16) have
started contributing decently to revenue.
Consumer Durable Revenue to increase from 25% in FY18 to 29% In
Revenue is likely to grow by 13% CAGR from FY18-21E
FY21E
100% 40000 50%
80% 40%
30000
(Rs mn)
60% 30%
20000
40% 20%
20% 10000
10%
0% 0 0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Electronics Electricals Consumer Durables Revenue Revenue growth
PAT is likely to grow by 23% CAGR from FY18-21E on higher EBITDA

Gross margin is estimated to improve gradually
margins
12000 35% 3100 70%
30% 2600 60%
10000
25% 50%
2100
(Rs mn)
(Rs mn)
8000 20% 40%
1600 30%
6000 15%
1100 20%
10% 10%
4000 600
5% 0%
2000 0% 100 -10%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Gross Profit Gross Profit Margin PAT YoY

Earnings at Risk
©
Focus on margin expansion
 Healthy revenue growth to drive operating leverage: Revenue growth is expected to remain healthy with New/growth
categories growing in the range of 35-80% over the next 2-3 years while matured categories are estimated at high single digit
to double-digit growth. Product penetration in both South and non-South markets along with market share gains to aid
revenue growth.
 Margins are expected to improve with revenue growth and the company has already invested in brand refresh in FY18 and
Q1FY19. Over the last 2 years, it has also invested in other business aspects like upgradation of IT systems, Salesforce
automation and automation of customer experience. We believe benefits of the same on margins would accrue over the next
2-3 years. In addition, margin improvement in non-South regions will also add, however, it could be in the medium term as the
company is still expanding its reach.
Technology up-gradation Purpose Benefits
Institutionalized with the support of robust IT solution pan Enhance the overall customer service experience,
New Service delivery model
India basis process effectiveness and operational efficiency
Revisit supply chain strategy, adopt industry leading Efficient and effective supply chain management
Supply Chain Management Excellence - Udaan supply chain practices and realign SCM organization enhancing capability and competitiveness of V-Guard
structure supply chain
Enhanced the service level commitments to the

Fragmented complaint logging system was replaced with
Customer Service - Parivartan customers, improved the customer experience with timely
a centralized call management (Contact Centre) system
status updates
Project Tez Sales force automation Enhancing its trade partner service
Improve procurement and sourcing, to manufacturing,

Automating Customer Experience product design, quality assurance, sales & distribution, Margin benefits
and customer service

124

Earnings at Risk
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Non-South margin improvement acceleration is key positive
 Geographical expansion bearing fruits: The company’s expansion into non-South regions has contributed positively with
revenue contribution from non-south now at ~37% vs. 25% in FY13. New product launches and category expansion have
benefited company in creating its brand value outside of South India. In addition, ~65% of incremental dealer addition now
happens from non-South regions vs. 50% a few years back. Over the years, the operating profit contribution has also been on
rise form non-South regions and EBITDA margin gap has narrowed significantly. The improvement in EBITDA margins from
non-South is key for operating leverage.
EBITDA margin is estimated to improve by 200bps from FY18-21E on

Non-south revenue (on a low base) saw 26% CAGR in FY12-18
normalization of advertisement spends and increase in gross margins
17000 60% 4000 12%
15000 3500
50% 10%
13000
3000
40% 8%
11000
(Rs mn)
2500
(Rs mn)
9000 30% 6%
7000 2000
20% 4%
5000 1500
10% 2%
3000 1000
1000 0%
500 0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18
South Non-South South YoY% Non-South YoY% EBITDA EBITDA Margin
 Recent brad refresh spends yet to reflect in sales growth: In FY18 end and FY19 start the company has spent ~Rsxmn
towards massive brand refresh pan India. This would have increased the brand visibility and strengthened it especially in non-
south, which can translate into healthy revenue growth going forward. As major ad spends are also behind, FY20 margins will
also see healthy expansion.
125

Earnings at Risk
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Financials remain strong with FCF and return rations
FCF is set to increase on higher OCF and limited Capex RoCE is likely to increase from 22% in FY18 to 26% in FY21E
2000 40%
35%
1500
30%
(Rs mn)
1000
25%
500 20%
15%
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 10%
-500
OCF FCF RoE R0CE
Advertisement spends as % of sales is likely to come down from

4.2% in FY19 to 3.5% by FY21
1400 5.0%
4.5%
1200
4.0%
1000 3.5%
After brand refresh in Q4FY18 and Q1FY19, ad spends
3.0% are expected to remain at normalised levels. Benefits
800
(Rs mn)
2.5% of brand refresh with healthy revenue growth can be

600 2.0% expected in ensuing quarters and will help company to
400 1.5% strengthen its positioning in non-south markets.
1.0%
200
0.5%
0 0.0%
Advertisement spends As % Sales

126

Earnings at Risk
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New category and product expansion timelines
Year Product launch Number of In house
Company Locations
locations Production
1977 Stabilizers
1992 Pumps Coimbatore (Tamilnadu), Coimbatore

(Tamilnadu),
1980 Stabilizers for Air Conditioners
1996 Water Heaters

Kashipur, Coimbtore (Tamilnadu),
1997 Cables Coimbatore
2002 Solar water heaters V-Guard 9 58%
2006 Electric Fans (Tamilnadu), Sirmaur (Himachal
2009 DUPS, Inverter Pradesh), Rangpo
2010 Domestic Switchgears
2012 Induction Cooktops (Sikkim), Duga llaka (Sikkim), Mamring

(Sikkim)
2013 Mixer grinders
V-Guard largely follows outsourcing model for production

100%
Year New Product launches
80% 40% 43% 40% 40% 40% 42%

Air coolers
60%
Modular switches
40% 60% 57% 60% 60% 60% 58%
FY18
LED Fans 20%
Gas cooktops
Outsourcing Manufacturing

127

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Valuation charts
300 300
250 250
9x
200 30x 200
24x 7x
150 150
18x 5x
100 100
12x 3x
50 50
0 0
Jul-12
Jul-14
Jan-19
Sep-11
Dec-12
Aug-16
Dec-16
Aug-18
Apr-11
Feb-12
Oct-13
Mar-14
Dec-14
Oct-15
Mar-16
Oct-17
Mar-18
May-13
May-15
May-17
Jul-12
Jul-14
Sep-11
Dec-12
Aug-16
Aug-18
Jan-19
Apr-11
Oct-13
Dec-14
Oct-15
Dec-16
Oct-17
Feb-12
May-13
Mar-14
May-15
Mar-16
May-17
Mar-18
One-year forward PE
300
250
200 40x
32x
150
24x
100
16x
50
0
Jul-12
Jul-14
Sep-11
Dec-12
Aug-16
Aug-18
Jan-19
Apr-11
Feb-12
Oct-13
Dec-14
Mar-14
Oct-15
Dec-16
Mar-16
Oct-17
Mar-18
May-13
May-15
May-17

128
Earnings at Risk

Emkay
Earnings at Risk
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EBITDA 2,086 1,904 2,413 2,885 3,435 Chg in working cap (641) (964) (491) (720) (810)
Depreciation 162 197 225 253 280 Operating Cashflow 1,299 522 1,394 1,478 1,789
EBIT 1,924 1,707 2,188 2,632 3,155 Capital expenditure (339) (658) (330) (330) (330)
Other Income 135 110 86 158 237 Free Cash Flow 959 (135) 1,064 1,148 1,459
Interest expenses 21 20 22 24 26 Investments (697) 137 0 0 0
PBT 2,037 1,797 2,252 2,767 3,366 Other Investing Cash Flow (153) 164 0 0 0
Tax 591 446 559 687 836 Investing Cashflow (1,055) (246) (244) (172) (93)
Minority Int./Income from Assoc. 0 0 0 0 0 Loans Taken / (Repaid) (47) 22 5 7 8
Reported Net Income 1,446 1,351 1,693 2,080 2,530 Dividend paid (incl tax) (91) (359) (449) (552) (672)
Adjusted PAT 1,446 1,351 1,693 2,080 2,530 Other Financing Cash Flow (59) 133 54 738 1,476
Financing Cashflow (94) (222) (412) 169 786
Balance Sheet Net chg in cash 150 54 738 1,476 2,482
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Opening cash position 76 150 54 738 1,476
Equity share capital 425 426 426 426 426 Closing cash position 150 54 738 1,476 2,482
Net worth 6,344 7,496 8,771 10,299 12,157

Loan Funds 25 47 52 59 67 Profitability (%) FY17 FY18 FY19E FY20E FY21E
Net deferred tax liability 40 24 24 24 24 EBITDA Margin 10.0 8.2 9.3 9.8 10.2
Cash & bank balance 150 54 738 1,476 2,482 ROE 26.2 19.5 20.8 21.8 22.5
Other Current Assets 46 11 11 11 11 RoIC 39.1 28.5 31.3 34.2 37.0
Misc. exp 0 0 0 0 0
Total Assets 6,408 7,584 8,864 10,399 12,265
129

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EPS 3.4 3.2 4.0 4.9 6.0 Revenue 12.0 11.5 11.3 14.1 13.8
CEPS 3.8 3.6 4.5 5.5 6.6 EBITDA 17.2 (8.7) 26.7 19.6 19.1
BVPS 14.9 17.7 20.7 24.3 28.6 EBIT 18.3 (11.3) 28.2 20.3 19.9
DPS 0.2 0.7 0.9 1.1 1.3 PAT 29.5 (6.6) 25.3 22.9 21.6
PER 59.7 63.9 51.0 41.5 34.1 Revenue 5,639 5,297 6,586 6,349 5,976
P/CEPS 54.6 56.8 45.8 37.7 31.3 EBITDA 670 494 379 465 498
EV / Sales 4.1 3.7 3.3 2.8 2.5 PAT 465 358 276 344 382
EV / EBITDA 40.9 44.9 35.2 29.2 24.2 EPS (Rs) 1.1 0.8 0.6 0.8 0.9
Shareholding Pattern (%) Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Source: Capitaline
130

Earnings at Risk
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Whirlpool of India
REDUCE, Target Price Rs1,283 Strong position in mass products, need to fill gap in premium segment
Increase in distribution reach to enable deeper penetration: WHIRL over the last 2-3 years has focused on increasing
distribution reach, adding to revenue growth. The company has increased its regional branches from 23 earlier to 40, increased
its presence in large format stores and also increased focus on marketing/sales force. Investment in distribution has helped
whirlpool to gain share vacated by Videocon in the Semi Automatic washing machine segment, resulting in ~3% rise in market
share.
Washing Machine and Refrigerator to drive growth: WHIRL’s focus has been on Washing Machines and Refrigerators
while in ACs, it continues to lag and has not been able to leverage its brand in the ACs. We believe that future revenue growth
will come from WM and Refrigerators along with contribution from appliances, while it would continue to struggle in ACs as it is
the most competitive category. We estimate WHIRL revenue to grow by 13% CAGR from (FY18-21E), driven by deeper
penetration, premium product launches, and continued market shares in frost-free refrigerators.
Lack of visibility on new category expansion and rising competitive intensity: WHIRL has seen volatility in the market
share in the past and the recent gain in both Refrigerators and Washing Machines was due to the fallout of Videocon. Further,
the company has lagged in launching premium products, leading to market share gains for Korean players. WHIRL derived
~30% of sales from entry level SKU’s and the same will increased competition going forward. The company might look to
import products from Chinese facility to make in-roads in premium products while the same will impact margins with recent
duty increase. The company has tried its luck in water purifiers segment as well while there has been lack of consistency, again
leading to market share losses. Revenue accretion from kitchen appliances will be seen in the long term.
Outlook and valuations: We expect revenues, EBITDA and PAT to grow at a CAGR of 13%, 15% and 16% respectively for
FY18-21E. Success of new product launches offer potential upsides to our growth estimates of 13% in FY21E. We recommend
a REDUCE with a target price of Rs1283 (30x FY21 EPS). Risks to our call: 1) lower than expected competitive intensity from
Voltas Beko, 2) continued market share gains and 3) fast paced product launches in premium category and in existing portfolio.
131

Earnings at Risk
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Strong brand and distribution to sustain growth in Single door refrigerators
 Washing Machines and Refrigerators to drive growth: Whirlpool’s refrigerator volume growth remains strong
WHIRL’s focus has been on Washing Machines and 1,900,000
Refrigerators. We believe that future revenue growth will 1,700,000

1,500,000
come from WMs and Refrigerators along with contribution 1,300,000
(units)
from appliances while it would continue to struggle in ACs 1,100,000
900,000
as it is the most competitive category. We estimate 700,000
WHIRL revenue to grow by 13% CAGR from (FY18-21E), 500,000
300,000
driven by deeper penetration, premium product launches,
100,000
and some market share gains in frost-free refrigerators. FY16 FY17 FY18
Frost free Direct cool Total
Whirlpool’s washing machine volume growth remains strong
900,000  Yet to gain share in Fully Automatic: Despite being a

800,000
reasonable player in Semi-Automatic washing machine
700,000
600,000 category, WHIRL has been lagging in Fully Automatic
(units)
500,000 category due to delay in product launches. Fully Automatic

400,000
category is dominated by three players i.e Samsung, LG
300,000
200,000 and IFB. As the competition remains intense and
100,000 companies likes Bosch, Siemens are also looking to
FY16 FY17 FY18
increase their SKU’s, it would be difficult for WHIRL to make
Fully Automatic Semi Automatic Total
in roads if it continues to delay product innovation.
132

Earnings at Risk
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Market share trends
Market share volatility, sustenance of recent gains key with rising competition: WHIRL in the past has seen volatility in the
market share in the past and recent gain in both Refrigerators and Washing Machine was backed by fallout of Videocon. Further,
company has lagged in launching premium products, which led to market share gains for Korean players. The company might
look to import products from Chinese facility to make inroads into premium products, while it will impact margins with the recent
duty increase. Market share in Washing machines has been relatively stable as compared to refrigerators. The company has
tried its luck in the water purifiers segment as well while there has been lack of consistency, again leading to market share loss.
Market share trend in Refrigerators Market share trend in Washing Machines
25 20
20
15
(%)
(%)
15
10
10
5 5
FY08 FY09 FY10 FY12 FY13 FY16 FY17 FY18 FY10 FY11 FY12 FY13 FY14 FY16 FY17 FY18
133

Earnings at Risk
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Revival in AC market share seems challenging
 Revival in AC seems unlikely amid intense Category Product Launches over the last three years
competition: The lack of focus on ACs can also be
Intellifresh Refrigerators
attributable to global thought process wherein the
Refrigerator Vitamagic Refrigerators
company’s focus has been refrigerators, washing
machines, and kitchen appliances. In India, the company ICEMAGIC Fresh Refrigerators
has not been able to leverage its brand in ACs and has Front Load washing machine
been struggling to gain market share. We believe that a
Bloomwash Washing machine
lack of focus on the category and hyper-competition should
Washing machine ACE XL Semi Automatic washing machine
keep Whirlpool as a fringe player in the category.

Supreme care washing machine
Capacity expansion, exports and new markets: WHIRL
ACE Stainfree washing machine
is expanding capacity of single-door refrigerator in its Pune
facility. The capacity expansion is 0.6mn with a total 3D Cool Inverter Air Conditioner
Air conditioner
capacity of 2.1mn units with total capex outlay of ~Rs18- 3D Cool Xtreme AC
1.9bn. It plans to make India a manufacturing hub and
Jet C Microwave Ovens
export direct-cool refrigerators and semi-automatic washing
Other Appliances Commercial Appliances
machines to SAARC region. Currently, WHIRL derives 8%
of its revenue from exports, which is likely to inch up in the Built-in Appliances
coming years. Source: Company, Emkay Research
134

Earnings at Risk
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Kitchen appliance - Niche category, potential to grow fast, although in long
term
 Kitchen appliances: Whirlpool has shown its intent to expand in the Kitchen appliances segment, which is similar to global
strategy. Globally, the company has strong brand positioning in the kitchen appliance in various countries of operations. The
recent acquisition of a 49% stake (for Rs1.8bn) in Elica PB India should strengthen its product portfolio in the segment. It
already has offerings under its global brand KitchenAid, which is a premium brand. Elica PB India will manufacture and
distribute cooking and built-in appliances under the Whirlpool brand in India. As per management, Whirlpool aims to expand
its portfolio of innovative products with Elica’s impressive capabilities in consumer insights, design, and manufacturing and
also broaden its distribution. It will take few years for this segment to have meaningful contribution to the total topline.
Product offering by kitchen appliances players

Category Product offering Elica GLEN Faber Prestige Sunflame KAFF
Wall Mounted P P P P P P
Island P P P P P P
EDS P P P × × ×
Kitchen Chimneys
Aspiration P P P P P P
Built-In P P P × × P
Ceiling P P P P P
Built-In Hobs P P P P P P
Built-In Induction P P P × P P
Built-In Ovens P P P × P P
Built-In Microwave Ovens P P P × P P
Built-In Appliances
Dishwasher P P P × × P
Barbeque P × P × × P
Fryer P × × × × P
Warmer Drawer P × P × × ×
Cooktops P P P P P P
Free Standing Appliances
Cooking Range P P P × P P
Source: Company, Industry, Emkay Research
135

Earnings at Risk
©
Strong financials
 Strong financials: WHIRL has strong cash generation, which has led to debt-free balance sheet from the last eight years. In
addition, its superior working capital cycle should also help in healthy cash generation. FCF has also been strong as the
company has been de-bottlenecking its existing capacities and recently added a few lines in its Pune facility for direct cool
refrigerators. Healthy revenue growth and operating leverage will continue to drive healthy operating cash flows going forward
as well. The company has started dividend payouts from FY17. If cash generation remains healthy and there is no major
organic or inorganic opportunities then, there could be a possibility of higher payouts.
FCF generation will continue to remain healthy Net Cash is estimated to record 33% CAGR in FY18-21E
8000 25000
6000 20000
(Rs mn)
(Rs mn)
4000 15000
2000 10000
5000
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E 0
OCF FCF FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
RoE and RoCE likely to remain steady
35%
30%
25%
20%
15%
10%
RoE RoCE
Source: Company, Emkay Research 136

Earnings at Risk
©
Increase in distribution reach to enable deeper penetration
Gross profit is estimated to see 14% CAGR during FY18-21E with
Revenue is expected to see 13% CAGR in FY18-21E
stable gross margins
90000 25% 30000 42%
70000 20% 25000 40%
(Rs mn)
(Rs mn)
15% 20000 38%
50000
10% 15000 36%
30000 5% 10000 34%
10000 0% 5000 32%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19EFY20EFY21E FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19EFY20EFY21E
Gross Profit Gross Profit Margin

Revenue Revenue Growth
EBITDA to see 15% CAGR in FY18-21E with stable margin PAT to witness 16% CAGR in FY18-21E, in line with EBITDA growth
11000 15% 6500 10%

9000 8%
(Rs mn)
(Rs mn)
10% 4500 6%
7000
5000 2500 4%
5%
3000 2%
500 0%
1000 0%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19EFY20EFY21E
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19EFY20EFY21E
EBITDA EBITDA Margin PAT PAT Margin

Advertising as % of Sales to remain steady at 1.5%
1500 2.5%
2.0%
(Rs mn)
1000
1.5%
1.0%
500
0.5%
0 0.0%
Advertisement Expense As % Sales
Source: Company, Emkay Research 137

Earnings at Risk
©
Valuation charts
1750 28x 2500
1500 22x
2000 9x
1250
16x 7x
1000 1500
750 10x 5x
1000
500
3x
250 500
0
0
Jan-13
Jun-13
Nov-13
Jan-16
Jun-16
Nov-16
Jan-19
Apr-11
Oct-11
Aug-12
Apr-14
Sep-14
Aug-15
Apr-17
Sep-17
Aug-18
Mar-12
Mar-15
Feb-18
Aug-12
Jan-13
Jun-13
Aug-15
Jan-16
Jun-16
Sep-17
Aug-18
Jan-19
Apr-11
Oct-11
Mar-12
Nov-13
Sep-14
Apr-14
Mar-15
Nov-16
Apr-17
Feb-18
One-year forward PE
1750 42x
1500
1250 32x
1000 22x
750
500 12x
250
0
Jan-13
Jun-13
Nov-13
Jan-16
Jun-16
Nov-16
Jan-19
Apr-11
Oct-11
Aug-12
Apr-14
Sep-14
Aug-15
Apr-17
Sep-17
Aug-18
Mar-12
Mar-15
Feb-18

138
Earnings at Risk

Emkay
Earnings at Risk
©

EBITDA 4,888 5,600 6,540 7,609 8,433 Chg in working cap 390 (124) 592 159 284
Depreciation 875 1,015 1,208 1,385 1,468 Operating Cashflow 3,836 3,842 5,001 5,221 5,795
EBIT 4,014 4,585 5,332 6,224 6,966 Capital expenditure (1,119) (1,531) (1,605) (1,605) (1,005)
Other Income 730 867 804 1,102 1,434 Free Cash Flow 2,716 2,311 3,396 3,616 4,790
Interest expenses 59 44 46 48 51 Investments (1,297) (3,266) 0 0 0
PBT 4,685 5,408 6,090 7,277 8,348 Other Investing Cash Flow (114) (221) (18) (18) (18)
Tax 1,580 1,902 2,131 2,547 2,922 Investing Cashflow (1,801) (4,151) (819) (521) 410
Minority Int./Income from Assoc. 0 0 0 0 0 Loans Taken / (Repaid) 0 0 0 0 0
Reported Net Income 3,105 3,507 3,958 4,730 5,427 Dividend paid (incl tax) 0 (458) (517) (618) (709)
Adjusted PAT 3,105 3,507 3,958 4,730 5,427 Other Financing Cash Flow 8,548 10,561 9,769 13,405 17,457
Financing Cashflow 8,489 10,059 9,205 12,739 16,697
Balance Sheet Net chg in cash 10,524 9,750 13,387 17,438 22,903
Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E Opening cash position 8,501 10,524 9,750 13,387 17,438
Equity share capital 1,269 1,269 1,269 1,269 1,269 Closing cash position 10,524 9,750 13,387 17,438 22,903
Net worth 14,831 17,963 21,405 25,517 30,234

Loan Funds 0 0 0 0 0 Profitability (%) FY17 FY18 FY19E FY20E FY21E
Net deferred tax liability (159) (279) (279) (279) (279) EBITDA Margin 12.4 11.6 11.9 12.2 12.0
Cash & bank balance 10,524 9,750 13,387 17,438 22,903 ROE 23.4 21.4 20.1 20.2 19.5
Misc. exp 0 0 0 0 0
Total Assets 14,671 17,684 21,126 25,238 29,955
139

Earnings at Risk
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EPS 24.5 27.6 31.2 37.3 42.8 Revenue 14.6 22.6 14.0 13.5 12.7
CEPS 31.4 35.6 40.7 48.2 54.3 EBITDA 27.5 14.6 16.8 16.3 10.8
BVPS 116.9 141.6 168.7 201.1 238.3 EBIT 30.9 14.2 16.3 16.7 11.9
DPS 0.0 3.0 3.4 4.0 4.6 PAT 29.4 12.9 12.9 19.5 14.7
PER 60.4 53.5 47.4 39.7 34.6 Revenue 11,522 9,580 12,577 16,511 11,815
P/CEPS 46.5 41.0 35.9 30.3 26.9 EBITDA 1,135 891 1,406 2,440 1,078
EV / Sales 4.5 3.7 3.2 2.7 2.3 PAT 752 538 930 1,657 801
EV / EBITDA 36.2 31.8 26.6 22.4 19.5 EPS (Rs) 5.9 4.2 7.3 13.1 6.3

Working Cap Cycle (days) (13.2) (10.7) (13.3) (12.7) (12.7) Public and Others 10.2 10.5 10.9 11.2 11.0
Source: Capitaline
140

Earnings at Risk
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Annexure
141

Earnings at Risk
©
Electrification across states
Balance Unelectrified
Total Electrified Households Household Electrified Balance Un-electrified Household
State Households as on
Households as on 10th Oct,2017 w.e.f 11th Oct,2017 Households Electrification (%)
10th Oct,2017
Gujarat 11414532 11373215 41317 41317 100
Andhra Pradesh 11402069 11281072 120997 120997 100
Tamil Nadu 10285848 10283678 2170 2170 100
Kerala 9813032 9813032 100
Punjab 3689970 3689584 386 386 100
Goa 128208 128208 100
Puducherry 95616 94704 912 912 100
Haryana 3434954 3408052 26902 13557 13345 99.61
Maharashtra 24557398 23810003 747395 617098 130297 99.47
Himachal Pradesh 1856780 1836911 19869 8039 11830 99.36
Madhya Pradesh 12667800 10653783 2014017 1843097 170920 98.65
West Bengal 15159713 14325592 834121 534342 299779 98.02
Chhattisgarh 5620607 4955758 664849 498929 165920 97.05
Karnataka 10218391 9654217 564174 187500 376674 96.31
Telangana 6828337 6373764 454573 121334 333239 95.12
Bihar 14073690 10714081 3359609 2557450 802159 94.3
Mizoram 230619 211302 19317 4951 14366 93.77
Sikkim 56423 48019 8404 4296 4108 92.72
Rajasthan 12224012 10019114 2204898 1198562 1006336 91.77
Uttarakhand 2193185 1835744 357441 95813 261628 88.07
Tripura 783699 610652 173047 78569 94478 87.94
Jharkhand 6446939 4730013 1716926 850626 866300 86.56
Odisha 9351188 7045981 2305207 1023584 1281623 86.29
Jammu & Kashmir 1543030 1291631 251399 22073 229326 85.14
Manipur 427059 317628 109431 36966 72465 83.03
Nagaland 421535 293684 127851 31497 96354 77.14
Arunachal Pradesh 322008 241467 80541 2531 78010 75.77
Assam 6496043 4119079 2376964 519135 1857829 71.4
Uttar Pradesh 33463537 19978171 13485366 3253012 10232354 69.42
Meghalaya 531024 327966 203058 39509 163549 69.2
Total 21,57,37,246 18,34,66,105 3,22,71,141 1,37,08,252 1,85,62,889 91.3
Source: Saubhagya scheme, Emkay Research
142

Earnings at Risk
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Product portfolio of various companies
Havells
Segment Consumer Industrial Positioning
Wires and Cables Domestic wires Industrial cables Premium
Lighting Fixtures and Fitting, LED lighting Solar lighting, Professional lighting Premium
Fans, Kitchen appliances, water heater, Air purifier, Air cooler, personal grooming,
Electrical consumer durable Heavy duty fans, Motors Premium
water purifier
Switchgears Switches and switchgears Reactive power solutions, Switchgears Premium
Consumer Durable Television, Washing machine, RAC NA Premium
V-Guard
Electronics Voltage stabilizers, Digital stabilizers, Digital UPS Mainline stablizers, Solar power systems Mass premium
Domestic wires, Domestic pumps, Domestic switchgear, Solar lighting, Professional lighting, Agriculture pumps,
Electrical/Electromechnical Mass premium
Modular switches Electric motors
Electric water heater, Gas water heater, Fans, Kitchen

Consumer durables Solar water heater Mass premium
appliances, room heaters
143

Earnings at Risk
©
Product Portfolio
Crompton Greaves Consumer Electricals
Lighting LED Lighting, Consumer Luminaries Professional Lighting, Solar Mass premium
Fans, Air Purifier, Water heater, Air coolers, Kitchen appliances, Small appliances,
Consumer durables Agriculture & Industrial Pumps Mass premium
Domestic pumps
Finolex Cables
Wires and Cables Domestic wires Industrial Cables Premium
Electrical Domestic Switches, Fans, Water heater MCB Mass
Lighting LED Lights Mass
IFB Industries
Washing Machine, Dishwasher,

Consumer Durable Clothes Dryer Premium
Microwave. RAC
Appliances Integrated kitchen, Kitchen appliances Laundry solutions Mass
144

Earnings at Risk
©
Product Portfolio
Orient Electric
Switchgear Domestic switchgears, Electrical accessories Mass
Lighting LED Lighting, Conventional lighting Professional lighting Mass
Home appliances Air cooler, Room heater, Water heater, Kitchen appliances, Small appliances Mass Premium
Whirlpool India
Consumer Durable Refrigerator, Washing machine, RAC, Water purifier, Microwave ovens, Air purifier Mass
Kitchen Built-in appliances, Small appliances Premium
145

Earnings at Risk
©
SKUs across the players and various product categories
Company Categories Price Range No of SKU's Features
Architectural bronze finish, Remote control operations, Contemporary LED under-light,
4 blades or higher
High Performance even at Low Voltage (HPLV), Dust Resistant Paint Finish, Unique
Decorative Rs 2,880-4,990 92
insert mould design patterns
Havells State-of-the-art aesthetics & styling looks, Four speed control with remote, Higher
Special Finish Rs 5,400-10,800 20
blades
Energy Saving Rs 2600-3500 11 5 star rating, Elegant and subtle body
High performance at low voltage, Wider tip blades for effective air circulation, Long
Regular Rs 2600-2800 45
lasting paint finish
Contemporary design to complement modern décor, Under light fan with convenience
Super premium Rs 7,000-15,000 6
of pull cord for speed and light control,
Crompton Powerful motor for better performance, Sharp strapping blade design for superior air
Premium Rs 3,500-6,500 19
flow, Intelligent speed control sensors that adjust Fan's speed automatically
Decorative Rs2,500-3,000
Premium Rs 2,500-4,500 23 Elegant looks with decorative body ring, Unique blade design and powerful motor.
Orient Electric Underlights Rs 5,000-8,000 10 Under light fan with remote operation, Decorative lighting with silent operations.
Aero Series Rs 4,000-6,000 5 Unique aerofoil design & winglet technology, Super Powerful. Sweep, Super Silent
Elegant construction of motors and canopy with plated finish, Convenient pull cords for
operating light and speed, Specially designed light gives more beauty to living décor
Vguard Trendy & integrated design of body & leaf ornaments, Powerful motor with superior
Premium Decorative Rs 2,500-4,000 5
performance, Special metalized finish in ornaments
Premium Smart LED Rs 2,500 1 LED Colours as you Desire, i-Mode, Breeze Mode
Wide tip blades for high air delivery and air spread, Separate chain chords for light and
Lifestyle Rs 5,490-19,270 18 speed control, Superior high permeability grade electric steel lamination for improved
USHA life, Performs well even at low voltage, 3 speed pull cord control for speed regulation
Special Finish Rs 2,360-3,540 27 Dust resistant coating, Modern décor crafting, superior performance at low voltage,
146

Earnings at Risk
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Recent product prices – Lower GST has been passed on
Air conditioner (Rs) July'18 Oct'18 Dec'18 Refrigerator (Rs) July'18 Oct'18 Dec'18
Bluestar 1.5 ton 3star 38790 38490 38990 Godrej 290 lts frost free 30324 23990 23990
Carrier durafresh 1.5 ton 3 star 38990 38490 Haier 220 lts direct cool 16490 16490 19490
Daikin 1.5 ton 4 star 46100 42990 37990 LG 260 lts frost free 30590 24590 24590
Samsung 1.5 ton 3 star invertor 42500 38990 36990 Samsug 253 lts frost free 26590 27790 25990
Voltas 1.5 ton 3 star 35990 28990 Whirlpool 265 lts frost free 24750 23670 24060
Source: Channel Checks. Note: Price of Voltas in DEC’18 is of 1ton 3 star SKU Source: Channel Checks Note: Price of whirlpool in DEC’18 is of 280 lts SKU
Semi Automatic Washing Machine (Rs) July'18 Oct'18 Dec'18 FA top load Washing Machine (Rs) July'18 Oct'18 Dec'18
IFB 6.5kg 20490 19790 19790

Godrej 7.5kg 15090 15500 12100
Godrej 6.5kg 16480 14990 18990
Whirlpool 7.5kg 12290 11900 13950
Samsung 6.5kg 21490 16990 16100
LG 7.5kg 14040 12690 15490
Whirlpool 6.5kg 16900 16300 18950
Samsung 8kg 15140 14300 13200 LG 6.5kg 27490 20990 20990
Source: Channel Checks Note Price of LG in DEC’18 is of 8 kg SKU Source: Channel Checks Note: Price of Godrej in DEC’18 is of 7kg SKU
FA Front load Washing Machine (Rs) July'18 Oct'18 Dec'18
IFB 6kg 31490 28990 28990
Bosch 6kg 31099 28650 29490
LG 6kg 30790 31990 31990
Source: Channel Checks Note Price of Bosch in DEC’18 is of 7kg SKU

147

Earnings at Risk
©
Global peer comparison for contract manufacturers
Sales
Companies CY11 CY12 CY13 CY14 CY15 CY16 CY17
GREE ELECTRIC APPLIANCES I-A 12,847 15,773 19,371 22,503 15,885 16,366 22,001
HAIER ELECTRONICS GROUP CO 7,751 8,814 10,128 10,897 9,998 9,616 11,674
HANGZHOU ROBAM APPLIANCES-A 235 308 427 576 716 862 1,030
HISENSE ELECTRIC CO LTD-A 3,624 3,992 4,616 4,691 4,788 4,766 4,860
GUANGDONG KELON ELEC HLD-A 2,851 2,988 3,946 4,291 3,720 3,992 4,913
ZHEJIANG SUPOR COOKWARE CO-A 1,096 1,084 1,355 1,539 1,725 1,786 2,088
QINGDAO HAIER CO LTD-A 11,377 12,588 14,017 15,667 14,228 17,836 23,473
Sales growth YoY
GREE ELECTRIC APPLIANCES I-A 23% 23% 16% -29% 3% 34%
HAIER ELECTRONICS GROUP CO 14% 15% 8% -8% -4% 21%
HANGZHOU ROBAM APPLIANCES-A 31% 39% 35% 24% 21% 19%
HISENSE ELECTRIC CO LTD-A 10% 16% 2% 2% 0% 2%
GUANGDONG KELON ELEC HLD-A 5% 32% 9% -13% 7% 23%
ZHEJIANG SUPOR COOKWARE CO-A -1% 25% 14% 12% 3% 17%
QINGDAO HAIER CO LTD-A 11% 11% 12% -9% 25% 32%
EBITDA
GREE ELECTRIC APPLIANCES I-A 713 1,352 2,048 2,554 2,033 2,510 4,173
HAIER ELECTRONICS GROUP CO 311 381 449 525 533 547 656
HANGZHOU ROBAM APPLIANCES-A 31 46 71 104 148 202 249
HISENSE ELECTRIC CO LTD-A 308 297 294 250 266 299 186
GUANGDONG KELON ELEC HLD-A 58 126 190 141 53 171 172
ZHEJIANG SUPOR COOKWARE CO-A 105 105 135 156 190 204 239
QINGDAO HAIER CO LTD-A 677 848 1,005 1,247 896 1,332 1,891
EBITDA growth YoY
GREE ELECTRIC APPLIANCES I-A 90% 51% 25% -20% 23% 66%
HAIER ELECTRONICS GROUP CO 22% 18% 17% 2% 3% 20%
HANGZHOU ROBAM APPLIANCES-A 52% 54% 45% 43% 36% 24%
HISENSE ELECTRIC CO LTD-A -3% -1% -15% 7% 12% -38%
GUANGDONG KELON ELEC HLD-A 119% 51% -26% -62% 221% 1%
ZHEJIANG SUPOR COOKWARE CO-A 0% 29% 15% 22% 8% 17%
QINGDAO HAIER CO LTD-A 25% 19% 24% -28% 49% 42%
Source: Bloomberg, Emkay Research. Valuation multiples are based on price as on 18th Jan’19
148

Earnings at Risk
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Glossary
Notation Description Notation Description
AC Air Conditioner LED Light Emitting Diode
ASP Average Selling Price MBO Multi Brand Outlets
BEE Bureau of Energy Efficiency MoP Market operating price
CIBIL Credit Information Bureau India Limited NBFC Non Banking Financing Company
DDUGJY Deen Dayal Upadhyay Gram Jyoti Yojana NEEFP National Energy Efficiency Fans Program
DELP Domestic Efficient Lighting Programme ODM Original Design Manufacturing
EEAPP Energy Efficient Agriculture Pumps Programme ODU Outdoor Unit
EESL Energy Efficiency Services Limited OEM Original Equipment Manufacturer
EHV Extra High Voltage PCB Printed Circuit board
EMI Equated monthly instalments RAC Room Air conditioner
EMS Electronics Manufacturing services REF Refrigerator
ESEAP Super-Efficient Air Conditioning Programme RERA Real Estate Regulatory Authority
FPD Television Flat Pannel Display Television SAC Split Air conditioner
GST Goods and Service Tax SEEP Super-Efficient Equipment Programme
IDU Indoor Unit SLNP Street Light National Programme
INR Indian National Rupee SLNP Street Light National Programme
IOT Internet of Things Small Screen Television Screen Size upto 32 inches
kv Kilo volt UJALA Unnat Jyoti by Affordable LEDs for All
Large Screen Television Screen Size more than 32 inches WAC Window Air conditioner
LCM Liquid Crystal Module WM Washing Machine

Source: Bloomberg, Emkay Research
149

Earnings at Risk
©
Emkay Rating Distribution
BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.
ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.
HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.
REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.
SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.
Completed Date: 21 Jan 2019 23:37:03 (SGT)

Dissemination Date: 21 Jan 2019 23:38:03 (SGT)
Sources for all charts and tables are Emkay Research unless otherwise specified.
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150

Earnings at Risk
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India Equity Research | Consumer Durable

Consumer Durables Your success is our success

Naval Seth <naval.seth@emkayglobal.com>

Aakash Fadia <aakash.fadia@emkayglobal.com>

MATHEW SA: DHANANJAY

Your success is our success

Earnings at Risk Emkay

Contents Page No. Contents Page No.

Recovery in real estate 27 Fans – Well-penetrated and competitive category, replacement.. 76

Technology advancement to improve efficiency 39 Havells India – (Company Update) 112

Key risks: 51 Annexure: 141

Earnings at Risk Emkay

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 In India, all categories, except TV, are fairly under-penetrated

Earnings at Risk Emkay

% household with multiple Our estimates for Penetration as per

Television 5% 10 45% 65%

Refrigerator NA 12 35% 20%

Washing machine 297 NA 11 15% 10%

Air cooler 5% 10 22% 17%

Earnings at Risk Emkay

% household with multiple

Washing machine 311 NA 10 28%

Air cooler 5% 8 40%

Source: Emkay Research

….expect healthy growth in electricals as well

Fans 80 121 6.1% 8.6% Crompton, Havells, Usha, Orient, Bajaj

Domestic Switches 40 62 7.7% 9.2% Havells, Anchor, Legrand

Domestic Switchgears 183 285 8.3% 9.3% Havells, Legrand, Schneider

Water Heater 18 30 11.5% 10.4% Havells, V Guard, Crompton, Racold

Stabilizers 13 13 1.4% 0.8% V-Guard, Godrej, Servo, Vitronics, Everest

UPS + Digital UPS 57 64 -10.6% 2.4% V-Guard, iBall, Intex, Luminous

Earnings at Risk Emkay

Durables Havells Lloyd LG Samsung Whirlpool IFB Godrej

Earnings at Risk Emkay

28000 120,000,000 14%

Source: CMIE, Emkay Research Source: CMIE, Emkay Research

Per capita gross disposable income is estimated to record 7% CAGR

2500 7.0% 2500

500 6.2% 1000

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Source: CMIE, Emkay Research Source: CMIE, Emkay Research

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India’s largest consumer finance company has seen a 40% CAGR

Source: Industry, Emkay Research Source: Bajaj Finance, Emkay Research 13

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2600 50% 1,600,000 70.0%

Source: RBI, Emkay Research Source: Bajaj Finance, Emkay Research

Earnings at Risk Emkay

Two-wheeler household penetration Four-wheeler household penetration

Source: SIAM, Emkay Research Source: SIAM, Emkay Research

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India Global FY18 FY23E

Source: Industry, Emkay Research Source: Industry, Emkay Research

Two wheeler 38,000 49% High Moderate Moderate

Television 13,000 45% Low Moderate High

Refrigerator 12,000 35% Low High High

Washing machine 10,000 15% Low High High

RAC 20,000 12% High High High

Source: Company websites, Channel checks, Industry, Emkay Research

Earnings at Risk Emkay