Key Sector Data   Market Cap (Rs Crore) 49042 Market Cap (USD Million) 7828 P/E 306.9 P/BV 4.3 Debt/Equity 3.1 ROA (%) 0.2 ROE (%) 1.4 EV/Sales 2.1 EV/EBITDA 16.6

 After a decent volume uptake (8-10% YoY) in H1FY15, demand grew at a subdued pace (~5% YoY) in Q3. Slowdown in the initial euphoria post elections, weak rural demand, subdued construction activity, steep discounts by e-tailers during festive season weighed on the quantum of enquiries/footfalls and conversion rates. Within white goods, sales of panel TVs and washing machines were better compared to air conditioners and refrigerators. Steep discounts by select e-tailers acted as a spoilsport for uptake in volumes during festive season, especially for the products at lower price points. These aggressive discounts caused channel conflicts, which made dealers reluctant to stock up adequate inventory, leading to lower sales.

The major share in revenue for consumer durables is the urban market that account to 65%. And most of them prefer buying online, thanks to the competition among the e-tailers, consumers are benefited at the end of the day. Many working professionals would prefer to skip the rush at a mall and rather order a new AC online at the click of a button. Though most online retailers say that their revenue is made up mostly from apparel, books and smartphones online, the consumer electronics are seeing an upward trend in sales every year.

Demand in Urban areas are for split ACs, laptops, LED TVs, beauty and wellness products, while the rural population is looking at refrigerators, ceiling fans etc. India is soon to emerge as the world's largest middle class consumer market with consumers estimated spending of US$ 13 trillion by 2030 as per a report by Deloitte. It has been estimated that size of the consumer durable market post of a growth of CAGR 15% during 2010-15. With key players of consumer durable goods such as Samsung India, Sony India, Whirlpool India, Panasonic, Phillips India, Voltas, LG India, Godrej India and Hitachi India reporting positive trends in consumers, yesterday's luxury products are becoming today's necessities.

White Goods Makers Plan Expansion

With volume growth back in white goods after three years, durable makers Whirlpool, Godrej Appliances, Voltas and Kenstar are on an expansion mode, planning entry into newer categories to become multi-product makers. American firm Whirlpool wants to re-enter categories such as multiple-door refrigerator, front-loading washing machines and air-conditioners, while refrigerator maker Godrej Appliances is charting a plan to become bigger in air-conditioners, aiming for one of the top three slots. Kenstar has just entered the air-conditioner segment, Voltas wants to expand into associated categories like air-coolers. The expansion comes after durable industry sales by volume has grown by more than 15% so far this fiscal year across categories, compared with the previous three years when sales were flat or have shrunk. The improved macro-economic factors and easing of inflation have brought growth back in the past three quarters, encouraging companies to get back into expansion.

AC market heating up for summer

As mercury levels start to rise, consumer durable companies are getting ready to launch air-conditioning products. Consumer durables major LG Electronics has set itself a target of achieving Rs 2500 crore in air conditioner sales this year and 25% market share. For this, the company has launched a new range of air-conditioners that offer a combination of innovative technology and protection from mosquitoes.

Videocon is looking at doubling its revenue from the AC segment at Rs 1600 crore in the next one year and from presently Rs 800 crore. The company want to do it with is new launch WiFi-enabled AC range. With its WiFi AC, the company is targeting to sell 90,000 units within next one year. The company was able to sell 2.5 lakh as of now. At present, 40 lakh AC units are sold per annum in the country.

Production Data

Production index of consumer durables declined 9% in December 2014 over the year, while it inclined by 3.4% over the month. The production index fell 15.2% in the nine month period April- December 2014 as against the 12.9% decline in April- December 2013.

Production of passenger cars increased 17.18% in December 2014 compared with the 8.29% decrease in December 2013. Production increased by 3.32% in April- December 2014-15 as against a 3.41% fall in the same period a year ago. Gems and jewellery production increased 66.77% in December 2014 compared with a 39.08% fall in December 2013. Production de-grew 2.04% in April- December 2014-15 as against a 32.67% fall in the same period a year ago.

Production of tyre, tractor, trailer increased 137.72% in December 2014 compared with a 46.26% decrease in December 2013. Production grew 20.08% in April- December 2014-15 as against 16.12% increase in the same period a year ago. Along with tyre, tractor, trailer, battery charger and woollen carpets saw good production growth. Production of battery charger increased 127.63% in December 2014 compared with a 270.73% rise in December 2013. Production grew 78.71% in April- December 2014-15 as against 6.34% increase in the same period a year ago. Wollen carpets production has shown good growth, up by 40.40% in December 2014 compared with the 24.46% de-growth in December 2013. Production grew 30.93% in April- December 2014-15 as against 5.43% growth in the same period a year ago.

There was fall in production of telephone instruments including mobile phone and accessories 80.08% in December 2014 compared with a 38.96% decrease in December 2013. Production de-grew 63% in April- December 2014-15 as against 27.75% decrease in the same period a year ago. PVC/Plastic suitcase production declined by 35.35% in December 2014 compared with a 9.08% increase in December 2013. Production de-grew 6.46% in April- December 2014-15 as against 0.07% increase in the same period a year ago.

The reduction in basic Customs duty on 22 items and a reduction in tax on royalty in Union Budget 2015-16 will encourage indigenous manufacturing and technology proliferation. The move to remove the special additional duty on information technology products gives the much-needed relief to manufacturers.

Tablet computers will become comparatively cheap as it components and accessories have been exempted various duties. The proposal to develop a sovereign gold bond, to introduce a gold monetization scheme and India made gold coins will all ease the supply of gold in the domestic market.

However, at the same time, there were other segments of industry which are not happy from the budget as no steps were announced for Make in India initiative. The 2.5% customs duty cut on components used in hi-end inverter refrigerator compressors may not spur local manufacturing since such goods priced above Rs 24000 account for less than 10% of the market. Again, companies that assemble LED televisions source panels from China, Taiwan, Japan and Korea, making duty exemption on their components irrelevant. The cut in excise duty on inputs used in LED lights, fixtures and lamps to 6% from 12% will have limited impact since this category has only 2-3% of the Rs 12,000 crore lighting market.

The Union Budget 2015-16 was silent on incentives in manufacturing of fast-growing and sizeable categories like air-conditioners or assembling of LED televisions, which could have spurred more investment since several new brands are entering these categories. However, the GST implementation timeline to April 2016 is a welcome step for the entire consumer goods industry as it will helps demand and reduces cost of doing business. Increase in MNREGA allocation may help in improving rural demand for essential durables and appliances.

Outlook

The budget may have cut customs duty on components used in premium consumer electronic products such as Led televisions, frost-free refrigerators and microwave ovens to promote the Make-in-India initiative. But industry players believe the steps won't lead to any significant investment since the market for these goods is too small to make local manufacturing viable.

The Union Budget 2015-16 was silent on incentives for manufacturing of fast-growing and sizeable categories like air-conditioners or assembling of Led televisions, which could have spurred more investment as several new brands are entering these categories. However, the goods and services tax (GST) implementation from April 2016 is a welcome step for the entire consumer durables industry as it will help demand and reduce the cost of doing business. Increase in the Mahatma Gandhi Rural

Employment Guarantee Act (MNREGA) allocation will help in improving rural demand for essential durables and appliances.

Industry participants are of the opinion that volume growth is likely to revive in FY16 led by revival in consumer sentiment. Macro-economic triggers like easing interest rates and inflation would lead to higher disposable income for discretionary spending. Industry expects demand recovery over led by favorable macros as well as pick-up in construction activity due to government's focus on housing. FY16 is likely to witness double-digit volume growth. Further, over February-May 15, the industry is expecting good volume uptake, triggered by the wedding and summer seasons and the World Cup