Key Sector Data   Market Cap (Rs Crore) 57204 Market Cap (USD Million) 8386 P/E 47.8 P/BV 7.0 Debt/Equity 0.2 ROA (%) 6.3 ROE (%) 14.7 EV/Sales 2.1 EV/EBITDA 24.8

The consumer durables sector was hit hard by demonetisation, especially in upcountry regions, with a 37-38% slump in overall sales in November this year. Even as the situation somewhat eased in December, the industry expects to close the current month with a de-growth of 7-10%. November and December were expected to be lean months post Diwali, however, demonetisation of high-denomination currency notes of Rs 500 and Rs 1,000 resulted in a de-growth in November-December versus a more than 20% growth that the industry witnessed in April-October 2016. In December 2015, the industry was growing at around 15%. While the metros and mini-metros are now limping back to normalcy, small towns and rural regions continue to face challenges. Considering that the consumer durables industry draws around 35% of its sales from upcountry regions, a demand revival in this part of India is crucial for steady growth going forward. Cash transactions have traditionally been high in the consumer durables industry .Region wise, the south has been least impacted as compared to north and east, as it is better equipped to handle digital currency. Across regions, smaller retail outlets have been more affected than large retailers.

The Union Cabinet cleared changes to the Modified Special Incentive Package Scheme (MSIPS) for electronics manufacturing. It has decided to reduce the time frame for companies to avail sops under the scheme, cut down the application window by almost 19 months to December 31, 2018 and cap the outflow through the special incentive package at Rs 10000 crore. Under the scheme, applications will be received up to December 31, 2018, or till such time that an incentive commitment of Rs 10000 crore is reached, whichever is earlier. If investment is more than $1 billion, then a high-powered committee presided over by the Cabinet secretary will approve it. Further, the subsidy to electronic manufacturing companies will be provided for investments made within five years of the project getting approved against a subsidy time frame of 10 years earlier.

The MSIPS, aimed at boosting domestic electronic product manufacturing, was notified in 2012 for both new and expansion projects. The scheme provides for capital subsidy of 20-25%, besides reimbursement of countervailing duty/excise for capital equipment for non-SEZ units and also reimbursement of central taxes and duties for some of the projects with high capital investments. The Centre has so far received 243 applications under the scheme, out of which 75 applications have been approved involving investment proposals of Rs 17997 crore,

Production index of consumer durables inclined 0.2% in October 2016 over the year, while declined by 8.6% over the month. The production index inclined 6.4% during period April – October 2016 as against the 11.7% incline of April – October 2015.

Highest weigthage items - passenger and gems & jewellery showed growth. Production of passenger cars increased by 6.54 % in October 2016 compared with a 21.32% increase in October 2015. Production increased by 3.47% during period April – October 2016 as against a 9.53% increase in the same period a year ago. Gems and jewellery production increased by 5.03% in October 2016 compared with a 359.53% increase in October 2015. Production grew 6.44% during period April – October 2016 as against a 101.05% incline in the same period a year ago.

Production of water meter of all kinds has shown highest growth, it has increased 56.36% in October 2016 compared with 37.17% decrease in October 2015. Production de-grew 7.03% during period April – October 2016 as against 7.21% decrease in the same period a year ago. Along with it, calculator and tyre, tractor, trailer saw good production growth. Production of calculator has increased 33.31% in October 2016 compared with a 136.71% increase in October 2015. Production grew 77.72% during period of April – October 2016 as against 16.47% increase in the same period a year ago. Production of tyre, tractor, trailer has increased 32.14% in October 2016 compared with a 12.97% increase in October 2015. Production grew 10.46% during period of April – October 2016 as against 12.94% increase in the same period a year ago.

There was fall in production of mixers & grinders by 54.31 in October 2016 compared with a 208.83% increase in October 2015. Production de-grew 64.53% during period April – October 2016 as against 305.11% increase in the same period a year ago. Production of electric meter of all kinds decreased 50.35% in October 2016 compared with a 8.21% decrease in October 2015. Production de-grew 27.35% during period April – October 2016 as against 4.80% decrease in the same period a year ago.

Demonetisation may spoil New Year party of smartphone sector

Sector may likely fall short of its revised target of 120 million units in 2016 due to note ban. After severely impacting the sale of mobile handsets during the end of the current year, demonetisation may affect the growth of smartphones in India in 2017. According to industry estimates, shipment of mobile handsets may witness a dip of 40% during January-March 2017 quarter, as various firms have started revising their orders for the coming months. According to handset players, vendors have already cut their order size for January and February as nearly 40% of the handsets imported during the current quarter lay in their warehouses. While, many attempted to revise their orders during November and December, they had to receive a chunk of it as such supply contracts are finalised months ago. Shipments during early 2017 may remain subdued as firms are closely watching the retail level offtake. A normalcy could be expected when liquidity in the market improves and inventory reduces. With two key currency notes going out of circulation, sales at the retail level plunged 50% during the weeks following November 8, when demonetisation was announced. The currency ban hit the sector at a time when it was touching new peaks. During July-September, 33 million units of smartphones were shipped in the country – the highest in any quarter.

Nearly two months after demonetisation, the situation looks grim. Shipment of smartphones in the December quarter might remain 19% lower than the previous quarter. Usually, the three months between October and December generates nearly 35% of yearly sales for most smartphone vendors in India as consumers flock to retail outlets during the festive season. Sales during October have been impressive with industry clocking 20% growth over the past year. Since demonetisation, stocks at the retail level have started piling up, leading to lower offtake for smartphone companies. Smartphone companies in India – the fastest-growing major smartphones market in the world – began the year 2016 with high hopes. The market here was expected to touch 140 million units of smartphones during the year – 40% higher than the shipped figure of 103 million units in 2015. However, by October signs of a slowdown emerged as feature phone sales continued to remain high.

During the nine months between January and September, some 87 million units of smartphones have been shipped in the country. This leaves 33 million units to be imported for the current quarter, which according to estimates is unlikely given the analysts to estimate shipment to remain at 27 million units.

Smartphone companies, however, are leaving no stones unturned. Many have come up or extended their financing schemes where interest is borne by the company. According mobile retailers, the number of EMI schemes has increased considerably since note ban. However, the sale of handsets below Rs 3,000 remains impacted as financing is not offered for them.

Consumer durables firms take a hit, pin hopes on digital payments, summer rush

After grappling with sluggish growth for the past two to three years, the year 2016 had finally brought the much-needed cheer for the consumer durables industry. However, demonetisation has hit the growth charts badly leading to a fall in sales by 30-40% in November.

Post-demonetisation, durable makers are now gearing up for the summer season, which contributes a big chunk to the sales of cooling products, such as refrigerators and air-conditioners. At the same time, various factors such as commodity prices could lead durable players to hike prices in January. From January till October, the industry was growing at 25% as we saw benefits of various factors that helped drive consumption, such as good summer, the Seventh Pay Commission, among others. However, in November, the industry saw a drop in sales by about 40% due to demonetisation.

The e-commerce channel's contribution to overall sales may be small, but it has seen very high growth this year. We believe its significance is only growing. Even if consumers are not buying online, they are forming critical purchase decisions online. Meanwhile, competition has further intensified, as some home-grown electronics brands, such as Intex and Micromax, are expanding to new categories in the home appliance segment. While Micromax this year entered the AC segment, Intex has recently forayed into refrigerators and is also strengthening its presence in washing machines and air-conditioners.

Voltas is planning to enter into newer areas of consumer durables including air purifiers, washing machines and microwave ovens. Given the large cash position of the company at present, Voltas is planning to enter are air purifiers, washing machines and microwave ovens. The company is also targeting to be among the top two players in the organized air cooler market over the next two to three years. Voltas is currently the fourth largest player in the air cooler market. The company had entered the segment one-and-a-half years ago. The current demonetization phenomenon is likely to have minimal impact on the company's unitary cooling segment. The management believes that demonetization has happened at a favourable time for air-conditioner (AC) industry, as November to February is a lean period for AC sales because of the winter season. While sales at the retail level could be impacted post demonetization, the inventory in supply chain with Voltas as well as with its dealers and retailers is minimal because of strong sales in the summer season and the ongoing off-season currently. The impact of demonetization is higher in tier II and tier III cities compared to metros and tier I cities, the brokerage added.

Panasonic steps up India focus

Panasonic is upping its investment in India despite challenges the consumer electronics and durables market is facing in the wake of demonetization. From long-term point of view, India still remains an attractive bet for Panasonic. The company is the maker of the Viera brand of televisions and Econavi range of air conditioners will set up a new manufacturing facility for refrigerators in Jhajjar, Haryana, at an investment of Rs 115 crore. The plant will be operational by November, 2017, with annual production capacity of 0.5 million units. This investment figure along with previous amounts, will take Panasonic's total investment into India in the last few years to over Rs 300 crore. While local manufacturing of most of its products including televisions, air conditioners, washing machines and mobile phones had begun in India, refrigerators was a gap that needed to be filled. That process has been set into motion now. The move to manufacture and assemble Panasonic products in India also comes at a time when the Japanese major is looking to shift its manufacturing and research and development (R&D) base to India from China. This comes as China loses its advantage as a cost-effective base, compelling consumer electronic majors to look at alternatives such as India. India will act as a regional hub not only for the south and west Asian markets, but also for Africa. The firm will also set up its first offshore advanced R&D unit in Bengaluru 2017-18 as it looks to widen its footprint in the country. The advanced R&D unit will begin with 60 people, which is expected to be ramped up quickly over time. Exports from India into South & West Asia and Africa are also expected to increase over time, Homma added.

Akai has re-entered the Indian market

Japanese consumer brand Akai has re-entered the Indian market and has tied up with a local Indian electronics distributor to begin sales. The company, which enjoyed sizeable operations here in the late nineties through its range of televisions and home theatres, will be retailed by the Paras Group that has brought the license rights for the Indian market. Paras Group has a turnover of around Rs 600 crore as it is a key distributor for companies such as Sony, LG, Nikon and Daikin. The company will be sourcing product kits from Taiwan and China and assembling them locally in the country. The high-end products are being fully imported

The industry is hopeful for an early onset of summer so as to make up for the slump in growth. It needs to clock a growth upwards of 20% in the fourth quarter (January-March) to close the current FY 2017 in the positive. Due to hardening commodity costs and the US dollar appreciating, industry players also plan to take a price increase of 2-3% across categories in January 2017. 

As per Consumer Electronics and Appliances Manufacturers Association, the consumer electronics and appliances industry, which has suffered a setback in November and December on account of demonetisation, is presently in the right momentum and is expected to grow at CAGR 9.5% from 2015 till 2021. After having a de-growth in November and flat sales in December, consumer durable industry is expecting to bounce back next year. According to the Consumer Electronics and Appliances Manufacturers Association, in 2016-17 (which still has 3 months to go), the industry is expecting sales of airconditioners, refrigerators, televisions and washing machines to touch 4.10 million units, 11.13 million units, 16.5 million units and 5.27 million units, respectively. The industry, which had almost flat growth from last two years, had very good festive sales this year coupled with factors such as good monsoon and implementation of the Seventh Pay Commission. With a 'fairly profitable' year 2016, the consumer durable industry is looking forward to maintaining the momentum by cashing in on Goods and Services Tax or GST, likely to be rolled out in 2017, and overcome the short-term issues thrown up by demonetisation.