X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Consumer Durables: Survival of the fittest - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 25, 2001

    Consumer Durables: Survival of the fittest

    The Budget 2000 was a disappointment for the Indian consumer durable industry. Though the industry has been longing for reduction in import duty on colour picture tube (CPT), which currently is at 35% (15%-25% on other sub-components of television), it was maintained at the same level. This was a big setback for the Indian consumer durable industry. Moreover, the rise in glass prices, globally, led to higher CPT (colour picture tube) prices. For instance, colour picture prices under the 21’ inch category has gone up from US$ 51 in FY00 to more than US$ 60 during the year.

    Production declines…
    (`000) Apr-Oct 2000 Apr-Oct 2001 Change (%)
    Washing machine 439 430 -2.1%
    Air conidtioners 24 23 100.0%
    Refrigerators 1,239 1,136 -8.3%
    Television 1,607 1,207 -24.9%
    Wrist watches 5,613 4,522 -19.4%
    Source: CMIE      

    Higher customs duty coupled with rupee depreciation increased the cost of manufacturing and thus pressurised margins for the consumer durable companies. Since vast majorities of the Indian population are price sensitive (elasticity of demand is still high in case of durables), these companies were unable to raise prices, in order to keep the demand stimulated. Even then, CTV sales dropped by 35% and the manufacturers were forced to cut production by 15%-20%. Overall sales volumes of the industry slowed down as drought conditions in three states curtailed demand for consumer durables. Added to this, both the non-banking finance companies and banks resorted to an increase in interest rates for consumer durable financing, which also subdued sales.

    However, refrigerator sales showed reasonable increase in volumes during the first half of the current year, which could be due to the change in consumer hierarchy (having bought television, consumers are buying refrigerators). Air conditioner, industrial as well as room air conditioners, sales also notched higher growth rates (12% in 1HFY01) in the current year thanks to the information technology boom and the increasing number of infotech parks. Both Carrier Aircon and Voltas reported a sharp growth in sales in the first quarter of the current year. Sales for Voltas grew by more than 22% in 1QFY01.

    The impact of slowdown in consumer durables is apparent from the quarterly results declared by companies like BPL and MIRC Electronics. These companies have reported either a drop or a very marginal rise in sales during the first half of the current year. BPL, the market leader in the television segment, reported a 6% decline in sales for the second quarter of the current year. Operating margins for MIRC Electronics in 2QFY01 has come down sharply from 9.9% in 2QFY00 to 6.3% in 2QFY01.

    Due to slow down in overall slow down in sales, consumer durable companies have cut in their adspend to prevent their margins from a nose-dive (except for the Korean companies, of course). Total adspend have come down by close to 10% for the current year.

    Despite all these concerning factors, Korean multinationals have had a memorable year. They have cornered a significant proportion of market share from Indian companies, expanded their distribution outlets and have gained high brand image among the large Indian middle class population. One interesting fact to note is that the share of Indian consumer durable companies has been on the decline over the last three years. The share of multinationals in the Indian market share pie has increased from 52% in FY98 to 65% in FY00.

    Given the competitiveness prevailing in the industry and the pressure on consumer durable companies to improve their operational efficiency, what is the way forward?

    The advent of convergence and advancement in television technology has resulted in consumers becoming more sophisticated. Consumers have a wide variety of models, be it in television, refrigerators and washing machines, to choose from at an affordable cost. We are already seeing companies launching web enabled television sets. Though the response to these are not encouraging, in the long term, with the advent of direct to home television (DTH), demand for web enabled televisions is expected to shown sharp growth. Samsung has already sold more than 20,000 units of its cable modem. We believe that television will no longer be perceived as just an entertainment product but as an entertainment-cum-educational product.

    Already Chinese companies are posing a great threat to the Indian companies by offering better products at cheaper prices. Post WTO, Indian companies will have to contend with imports, as customs duty would be lowered. Having said that, offering cheap, cheaper and cheapest product cannot be a sustainable strategy in the longer run. Therefore, survival depends on the ability to deliver technologically advanced products at the right price and this depends on improving their operational efficiencies.

     

     

    Equitymaster requests your view! Post a comment on "Consumer Durables: Survival of the fittest". Click here!

      
     

    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE CONSUMER DURABLES


    Aug 18, 2017 (Close)

    S&P BSE CONSUMER DURABLES 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS