Key Sector Data   Market Cap (Rs Crore) 75245 Market Cap (USD Million) 11783 P/E 44.4 P/BV 7.3 Debt/Equity 0.1 ROA (%) 7.8 ROE (%) 16.4 EV/Sales 2.6 EV/EBITDA 25.3

Source: Capitaline Database; Capital Market Research

*Videocon Industries and Hanung Toys is excluded and MIC Electronics included aggregate key sector data and graph

Consumer durables firms are expecting a 10-20% increase in sales during the festive season from a year ago on the back of pent-up demand built in the run-up to the launch of the goods and services tax (GST), an uptick in rural demand owing to good monsoon and overall consumer confidence in the economy. Most Indians consider it auspicious to purchase consumer durables, precious metals and jewellery and automobiles during the festive season—beginning late August and ending December this year.

The hike in central employees' allowance and a rate cut by the monetary policy committee (MPC) in August are also influencing expectations. Leading retail store chain Vijay Sales expects a 20% year-on-year growth in sales. However, there are factors that may weigh on this optimism. Flooding in some states may reduce rural demand. In the urban sector, the information technology (IT) industry, a large formal sector employer, is witnessing jobless growth; therefore, there is muted optimism

Industry Scenario

The recent demonetization drive has hit sales with dealer reporting a 40-70% decline but the credit rating agencies continue to see India as one of the world's fastest growing economies. The Government policies have given a boost to the growth of the consumer electronics sector, which will be fuelled further with the implementation of GST in few months.

China's scale of productions is almost 7 to 10 times as compared to the level of production in the India market. Indian manufacturers still have to import a lot of their components. Besides, Indian manufacturers also suffer from various disability factors such as higher freight cost, interest cost, electricity cost and China has also devalued their currency, making manufacturing in India unviable. To avoid this and also to carry forward the momentum of make in India, GoI has taken several initiatives such as approving a policy for providing preference to local manufacturers in government procurement which will boost domestic manufacturing, create additional employment opportunities and stimulate flow of capital & technology. Such policies would continue to maintain the balance between promoting Make in India and ensure timely, value –for-money products for procuring entities.

The Rural hinterlands in India cover around 6,50,000 villages. These villages are inhabited by about 850 million consumers, making up for about 70% of population, who cater to around half of the country's GDP. These areas have different consumptions patterns, and what can be seen these days is that the rural populace is gradually changing to increasingly resemble the consumption patterns of urban areas. Owing to a favorable changing consumption trend and potential size of the market, the rural areas provide lucrative investment opportunity.

India offers a vast geographically diversified market to explore, the need of the hour is to focus on innovation and service. Technological innovation will be at the forefront and there will be significant development in the space of IoT, artificial intelligence and big data enabling users to lead their daily life in a smart and convenient way

In 2016, revenue of consumer durables recorded robust growth. In 2015, revenue from consumer durables sector in India stood at USD 9.7 billion, which further increased to USD 12.5 billion in FY16. Around two third of the total revenue is generated from urban population & rest is generated from rural population. While urban markets account for the major share, rural & semi-urban markets are growing at a CAGR of 11% [2012-2016] and are likely to contribute majorly to consumer sales.

Fast growing Retail e-commerce sector - is expected to reach USD 17.5 billion in 2018. The sector is witnessing the emergence of modern durable retail chains & e-retailers like Tata Croma, Reliance Digital, Ezone etc. Online retail marketing is expected to grow at a CAGR of 40-45% during 2014-2018. Companies are increasingly focusing on partnering with e-retailers to promote sales & increase penetration in the Indian market.

Increased affordability of products - With the initiative of "Make in India" campaign, many domestic & Chinese manufactures are investing in India to set up their manufacturing plants which would produce more affordable products

Focus on energy efficient and environment-friendly products - Companies are constantly introducing higher star-rated, energy-efficient ACs, inverter ACs & refrigerator. It has been made mandatory for manufacturing companies to control emissions from climate-damaging refrigerants.

Growing Hi-end market - Growing number of HNIs is boosting demand for Hi-end products like Side-By-Side Refrigerators, Multi- Door Refrigerators, Front Load Washing Machines etc.

Demand for consumer durables in India has been growing - on the back of rising incomes. This trend is set to continue even as other factors like rising rural incomes, increasing urbanization, a growing middle class & changing lifestyles aid demand growth in the sector.

Smart TVs have gained traction over the past few years all over the world. Smart TV market in India is still in the nascent stage but is displaying a healthy growth rate. More than 50% of flat TVs in India are expected to be smart TVs by 2017. According to TechSci Research report, the television market in India is anticipated to cross US$ 9 billion by the end of 2021. With a population of over a billion, India is one of the major developing countries with huge middleclass population base and rising per capita income. With increasing digitization, the number of DTH users in India is expected to increase to 62 million by 2021. Backed by favorable government policies and increasing number of DTH users, the demand for televisions, especially smart TVs, is expected to propel the growth of the country's television market during 2017–2021.

Higher spending on electronic items by consumers is one of the major growth drivers which is anticipated to bolster the market till 2025. Rising demand for High Dynamic Range (HDR) and 4K resolution features for both content and hardware access will accelerate the smart TV market globally.

A drastic fall in data prices and faster internet speeds is also letting TVs to get ‘smarter' as more and more Indians are opting for flat panels that offer a web browser and a host of net-streaming applications such as Facebook, Netflix, Hotstar, Amazon Video and YouTube.

The growth in the LED TV market is also leveraged by growth in the E-Commerce market in India. Online portals offering nail biting prices has influenced the buyer to go the buy button and interest free EMI schemes offered by various credit card companies have been catalytic to this growth. Such online distribution channel has been emerging gradually in the recent years owing to the busier lifestyles of the population and the benefit of comfort provided by these online sales portals.

According to MIRC Electronics Annual Report, 2017 the size of the Indian Air Conditioner market in financial year 2016-2017 was around USD 2 billion. Current penetration of ACs stands at 6%. Indian air conditioners market is projected to grow at a CAGR of over 10-12% during 2015-2020. The Indian air conditioning market is divided into two major segments: Commercial Air Conditioners (VRF, Chillers & Others) and Room Air Conditioners (Split and Window air conditioners), among which, residential air conditioners segment witnessed a higher revenue share in financial year 2016-2017. Within the residential segment account of increasing consumer awareness, reducing price gap with the entry level models. The inverter segment will become the main revenue grosser going forward on account of the potential electricity saving for the end users and the expected star rating change in the fixed speed category which will drive up the prices of fixed speed split AC's almost equal to the inverter prices. This domination of room air conditioners segment is expected to continue over the next five years. Increase in summer temperatures, significant increase in discretionary income and easy financing schemes have led to shortened product replacement cycles and evolving life styles where consumer durables, such as ACs are perceived as utility items rather than luxury possessions. Recent innovations like wifi air conditioners has added various utility features including a messaging feature through which it can receive recommendations and control settings even when the user is away from home.

Commercial Refrigeration

The commercial refrigeration segment includes a wide range of products such as deep freezers, water coolers, bottled water dispensers, visi coolers, reach-in as well as under-counter chillers and freezers, ultra-low temperature freezers, cold rooms, bottle coolers and ice machines. Rapid changes in consumption patterns across customer segments, coupled with enhanced consumer awareness, and the fast-growing segments such as food, dairy and pharmaceutical industries contributed to the growth in this segment.

Rising disposable income coupled with changing lifestyle will have a favorable impact on the Indian microwave ovens market. The increasing urbanization and decreased number of subsidized gas cylinders for cooking. So far, of the estimated 14.78 crore LPG consumers in the country, over 52 lakh are reported to have given up access to subsidized fuel voluntarily in support to the government's ‘Give it Up' campaign. This has helped in increasing demand of this product. Also e-commerce has helped in increasing the sales of this category.

Restocking picks up in August post a weak July

With impending GST implementation from July, the electronics retail chain initiated a discount sale (10-12% margin v/s the normal 20%) in mid-May to clear old inventory. Strong demand helped it to clear old stock by mid-June; for the industry, discount sales continued well into end-June. End-June to early July, manufacturers had stopped production due to GST transition. This, along with weak secondary sales in July/early-August, led to slow restocking; however, by mid-August restocking was complete in most retail outlets. Restocking for washing machines, refrigerators and LED TVs led to inventory normalizing. However, as the peak summer is behind, ACs and air coolers would see meaningful restocking only in September before the festive season. No price hikes have been taken by any brand post GST in air conditioners. Industry expects that price hikes could come through before the festive season starting mid-September. There have been price hikes of Rs150-500 across brands and price ranges in Washing machines / refrigerators

Production index of consumer durables declined 4.5% in May 2017 over the year while declined by 4% over the month. The production index inclined 5% during period April - May 2017 as against the 14.3% incline of April - May 2016.

Highest weigthage items - Cement- all types has inclined while bars and rods of mild steel has declined. Production of Cement- all types increased by 1.89% in May 2017 compared with a 2.76% increase in May 2016. Production increased by 5.64% during period April - May 2017 as against a 1.11% increase in the same period a year ago. Bars and rods of mild steel production decreased by 0.36% in May 2017 compared with a 15.24% increase in May 2016. Production grew 10.9% during period April - May 2017 as against a 13.18% incline in the same period a year ago.

Production of rubber insulated cables has shown highest growth, it has increased 52.82% in May 2017 compared with 4.94% decrease in May 2016. Production grew 38.14% during period April - May 2017 as against 8% increase in the same period a year ago. Along with it, rail and rail materials and jelly filled cables saw good production growth. Production of rail and rail materials has increased 34.72% in May 2017 compared with a 20% increase in May 2016. Production de-grew 2.02% during period of April - May 2017 as against 8.86% increase in the same period a year ago. Production of jelly filled cables has increased 33.17% in May 2017 compared with a 23.38% increase in May 2016. Production grew 2.34% during period of April - May 2017 as against 52.30% increase in the same period a year ago.

There was fall in production of ACSR conductors by 51.92% in May 2017 compared with a 13.18% increase in May 2016. Production grew 12.35% during period April - May 2017 as against 5.92% increase in the same period a year ago. Production of Flat products of alloy steel decreased 18.54% in May 2017 compared with a 22.37% decrease in May 2016. Production de-grew 2.27% during period April - May 2017 as against 21.55% increase in the same period a year ago.

Panasonic eyes Rs 2000 crorer revenue from India smartphone business

Panasonic expects revenue of Rs 2000 crore from its smartphone business this year as it revamps operations by launching new devices and undertakes aggressive marketing. The company plans to launch as many as 28 devices this year, priced in the range of Rs 6000 to Rs 20000. The company ended its partnership with Jaina in April and is now pursuing the smartphone business on its own. Last few months have been spent on preparing for the launch and now the company is ready to bring in the best products for Indian customers.

LG to launch IoT-enabled products by next year

LG plans to introduce products based on Internet of Things (IoT) technology in the home appliances segment by early next year. LG Electronics India (LGEI) is in talks with several mobile network service operators to form a partnership to roll out IoT-based products. May be by the end of 2017 or early next year its first IoT product would be introduced in India, The company's parent has already been selling such products in Korea, in India the wait is due to the need of partnerships with telecom service providers for data connectivity. Here the telephone operators are studying it. By partnering with a telecom operator, LGEI is looking to address the requirement for a network provider to connect with different appliances in a household. LGEI plans to introduce appliances equipped with features such as LG HomeChat and SmartThinQ that enable consumers to control and operate home appliances through smartphones. These appliances are connected through the Internet. This would be in home appliances first as washing machine, air conditioners and refrigerators, which would be IOT enabled there and controlled. Last year, LGEI had clocked sales of Rs 22000 crore and is among leaders in various appliances segments here. The company has two manufacturing units - Greater Noida and Pune.

Outlook

Consumer durables have traditionally had a large cash component and the recent government scrutiny in this area will affect consumer behaviour negatively. Private consumption will increase as GDP picks up. E-tailers Amazon India and Flipkart are looking to clock record sales for the festive season, and are planning to offer aggressive deals on exclusive brands. The consumer durable brands may give up some of their margins, while the e-tailers may partly give up their commissions. But brick-and-mortar retailers will not offer large discounts for various reasons, including GST. Hardening metal prices are also squeezing margins, discouraging discounts, according to leading consumer durable player Godrej and Boyce. However brands may take decisions on pricing and discounts as festive season advances. GST promises to be a shot in the arm for organised jewellers that currently comprise only 30-35% of the market. According to industry players, unorganised units and small jewellery makers may join hands with the relatively better-positioned brands through franchises, thereby leading to consolidation and market share gains for the organised entities. 

The country's economic growth and increase in purchasing power have improved the standard of living of its middle class. The urge to live comfortably is now being shared by a larger cross section of society. Trends like rising urbanization, smaller family sizes, increasing proportion of double-income nucleus families, easier financing are supporting durable goods demand and these trends are likely to intensify going forward. With the government taking various steps like improving power infrastructure and implementing several schemes like Deendayal Upadhyaya Gram Jyoti Yojana rural India is expected to have higher access to electricity and should push demand for Consumer durable products. Currently, there is only 20% penetration for refrigerators and 9% for washing machines in the segment. But with the initiatives it is expected that moving forward the segment will witness growing demand. Customers today have lots of choices, and hence companies are exploring innovative ways to fulfill the needs of the customers and create new strategies to retain the existing customers and attract new ones. The middle and upper-middle classes have already started migrating from the low-end direct cool refrigerators, with only one door, to the Frost Free category, having two or more doors. As such, industry is expected to see strong growth over long term.