• AUGUST 6, 2001

Consumer durables: Tougher times

The slowdown in the economy has clearly taken its toll on majority of the consumer durable companies for the second year in succession. Atleast, the first quarter results of some of the key companies are reflecting this. Will they be able to come out of it?

Here we have taken select consumer durable companies, who have presence in various segments of the industry like television, watches, refrigerators, air conditioners and photographic instruments. The consolidated results are quite disastrous. Average sales in the current quarter have fallen by 15.7% to Rs 2,319 m from Rs 2,751 m in the corresponding quarter of the previous year. After an eventful 2000 (thanks to the cricket world cup), television sales have hardly shown any positive signs of growth. In fact, black and white sales have come down to 2.3 m units from an average volume of 3 m units per year. The 14, 20 and 21 inches segment, which constitute almost 70% of the industry volumes, have also come down in light of the slowing economy and lackluster rural demand. Though some high-end models are doing well, the overall industry scenario is grim.

Net profits nosedive…
(Rs m) 1QFY01 1QFY02 Change
BPL 190 102 -46.3%
Titan 1 (146) -
Kodak 103 25 -75.7%
Carrier 102 26 -74.5%
Voltas 2,355 2,312 -1.8%
Total 2,751 2,319 -15.7%
The same is the case with other segments like refrigerators and air conditioners. Air conditioner demand, which tends to be on the higher side between April-June, has decelerated for the second consecutive year. The first quarter results of Carrier Aircon and Voltas seem to seal the argument.

Barring Carrier, the other companies dealt in this article are Indian companies. If one were to look at the performance of Korean majors like LG and Samsung, as reported in the pink newspapers, there is a clear contradiction. These companies have reported an average growth of around 15% in sales during the aforesaid quarter. This has been the case in the Indian consumer durable industry for the last four years. Multinationals have cornered significant market share from the Indian companies progressively, be it TVs, refrigerators and A/Cs.

As margins plummet…
(Rs m) 1QFY01 1QFY02
BPL 9.4% 11.9%
Titan 6.1% 3.0%
Kodak 13.0% 4.4%
Carrier 9.9% 2.6%
Voltas 4.7% 4.6%
The subdued demand scenario has had a material impact on the margins as well. Though BPL managed to improve margins, this is more on account of internal restructuring than anything else. Margins, on a consolidated basis, have more than halved in the first quarter. Stiff raw material prices, rising inventory, a less than commensurate growth in sales as compared to advertisement expenses and lackluster demand have resulted in this sharp drop in realisations and thus margins. Will the scenario be any different in the second half of the current financial year?

Given the macro-economic fundamentals, prospects are bleak for the rest of the year. CTV demand in the current year, as per the CETMA projections, is expected to show a degrowth of 10% and the scenario is no different for other segments as well. Though monsoons are good, it remains to be seen whether it filters into actual topline growth. With consumers' access to imported models becoming easier, pricing pressure might continue to depress profits of in the coming quarters also.

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 (Research Analyst) bearing Registration No. INH000000537 (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, Canada or the European Union countries, 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 (Research Analyst)
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