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Durables: Better times ahead? - Views on News from Equitymaster
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  • Aug 21, 2001

    Durables: Better times ahead?

    After a disappointing FY01, consumer durable companies have something to cheer about. Sales in June as well as July for televisions (TVs) and refrigerators have improved. Are things beginning to look up for these companies?

    Recent estimates by a research agency indicate that refrigerator sales have indeed increased by 4% as against marginal growth registered in the corresponding quarter of the previous year. As expected, the frost-free segment continues to drive industry volumes. Though the exact quantum of volumes is not available, recent production details of key manufacturers shows encouraging trends. Aggregate production of refrigerators between April-May 2002 has increased by 9.3% to 438,000 units.

    The total production of refrigerators in FY01 was around 2 m units. Production between Apr-May 2001 was 400,000 units or 19.9% of aggregate FY01 production. This has gone up to 21.8% in the first two months of the current year, indicating that there is a marginal rise in demand.

    Mixed performances…
    Period Washing Machine A/Cs Refrigerators** TVs**
    Apr-Mar 01 741,854 37,563 2,013 2,399
    Apr-May 01* 16.5% 17.9% 19.9% 14.4%
    Apr-May 02* 13.1% 15.8% 21.8% 14.8%
    * as a % of Apr-Mar 01 production
    ** ('000 nos)

    Similarly, TV sales in the first two months of the current year have also increased, albeit slowly. Infact, it is the TV segment, which has registered a sharp rise in production during the aforesaid period. The 14, 20 and the 21 inches segment, which contribute to almost 70% of the industry volumes, have more or less remained stagnant at the previous years’ levels. Also, the black and white TV segment, has witnessed a 23% fall in sales in FY01. This is primarily on account of companies pushing the exchange set models to the rural segment. But there is a notable rise in the 29 and the upper segment models (notably the flat screen TVs).

    But all is not good for the durable segment. The air conditioners and the washing machine segments have registered a drop in volumes as well as in production between Apr-May 2002. This is apparent from the first quarter results of companies like Carrier Aircon. Though first quarter is the key season for air conditioner segment (in light of the summer season), Carrier has reported a 4% drop in sales in 1QFY02. Though Korean companies have made significant inroads in terms of market share in the A/C segment, demand, by itself, has not escalated.

    Can this recent rise in demand be sustained over a longer term remains to be seen. Given the fact that country has received normal monsoon, there could be a rise in sales towards the end of the year. But it is well known fact that domestic majors like BPL, Videocon and MIRC are under competitive pressure from MNC majors. So it also remains to be seen whether the rise in demand will result in higher growth the domestic listed majors.



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