Key Sector Data   Market Cap (Rs Crore) 81140 Market Cap (USD Million) 12520 P/E 47.8 P/BV 7.9 Debt/Equity 0.1 ROA (%) 7.8 ROE (%) 16.4 EV/Sales 2.8 EV/EBITDA 27.3

Industry Scenario

The Indian Consumer Electronics and Appliance industry

Indian Consumer Electronics and Appliances (CEA) market has been witnessing sustained double digit growth rate in the past few years. Increasing product awareness, affordable pricing, innovative products and the high disposable incomes have aided in the strong growth in the CEA market in India. Rapidly shrinking replacement cycle for consumer durables is observed as sustaining demand in urban India. The existing low penetration rates and the increasing usage of consumer durables have catapulted rural India to the high demand (30% annual growth) generating segment.

Innovative retail marketing initiatives such as the exchange programs, bundled offers, attractive discounts, freebies and extended warranty services are fuelling consumer spending. Availability of easy financing schemes is also placing more buying power in the hand of consumers. The rapid proliferation of e-commerce/mcommerce and e-tail has contributed to a higher penetration of the CEA market in urban and semi urban centres.

Depreciating Rupee and the increasing raw material costs are observed to be the critical restraints faced by the product manufacturers as it negatively impacts their margins. The high reliance of the manufacturing ecosystem on raw material imports has resulted in surge in product prices owing to the restrictive duty structure. This has resulted in some amount of price fluctuation over the past 2-3 years. Inadequacy in the ecosystem is seen as a persisting challenge to the local production of certain consumer electronics products, especially the more sophisticated products such as digital cameras, camcorders, high end FPD TVs which are completely imported.

Market Size Estimates and Forecasts

The CEA market has been witnessing robust growth trends in the past 5 years. Moving forward, the market is expected to foresee double digit growth reinforced by the surging rural consumption, reducing replacement cycles, increasing penetration of lifestyle appliances, and availability of multiple brands at various price points. The Consumer Electronics (CE) market revenues is expected to grow at a cumulative average growth rate (CAGR) of 17.2% from FY16 to FY21 while the Appliances segment is expected to grow at a CAGR of 11.6% over the same period, resulting in a CAGR of 16.5% for the overall CEA market. In comparison to global growth averages, this is almost double that of other economies as per Dixon Technologies red herring prospectus

India CEA Market Forecast, FY13 to FY21

Consumer Appliances (CA) product market includes AC, Refrigerator, Microwave oven, Water Purifier, Air coolers, Mixer grinders, Blenders, OTG, Electric kettle and rice cookers, Induction cooktop, Food processors, Juicer/ Extractor, Electric shavers, etc.

Consumer Electronics Market

The Mobiles phones represent the largest category in the CE market. Apart from increasing penetration across rural and urban areas, the shortening replacement cycle, need for greater mobile phone data, better features and power management is driving sales of phones in the country. The narrowing gap between a feature phone and smartphone has seen a tilt in the demand for smartphones across the country.

Televisions the next big category as it enjoys an overall penetration of 60%. Despite the high penetration the market is expected to witness continued growth contributed by the replacement demand, increasing preference for a 2nd TV in households, upgradation to a newer technology/advanced model and more purchases in the rural regions.
   Source: Frost & Sullivan analysis, CEAMA, Dixon Technologies RHP

The following are some of the key factors contributing to the growth of the consumer electronics market:

• Exponential rise in use of mobile phones, increasing penetration of smartphone in urban-rural markets, continuous up gradation and addition of features

• Continually spiralling replacement demand for all consumer electronic products

• Phenomenal penetration of FPD TVs – replacement of Cathode Ray Tubes (CRT) by FPDs and up gradation of FPD TVs – from LCD to LED to 3D/Smart/4K

• Significant growth in consumer durable purchase in rural India which is currently under penetrated.

• The digitization regulation is the driver for the uptake of STB – both cable and satellite.

• Entry of numerous foreign and local brands that enhance the competitive spirit by ushering wide range of offerings at varied price points which increases the option available to consumers

• Easy financing and zero down payment schemes

• Penetration of e-tail and emergence of numerous delivery models. Proliferation on net banking is another critical propellant for the surge in e-tail purchases. Moreover e-tailers offer consumer electronic products at prices very competitive when compared to physical retail and thus encouraging more online purchases.

Consumer Appliances

The market for consumer appliances is primarily driven by the same factors that drive the consumer durable market as a whole. However, some factors are unique to the consumer appliances segment. They include, climatic changes, changing lifestyle, expanding participation of women in the job market, improving electrification and more reliable supply of electricity to residential areas, among others.

In FY 2016-17, on the back of satisfactory monsoon, the rural market demand showed some green shoots. It was severely affected over the last couple of fiscals due to deficient monsoon. The majority of Indians still depend directly or indirectly on the performance of agriculture to make their living. In the first half of FY 2016-17, the consumer appliances segment fared reasonably well. However, the second half was not the same for the industry, though the recovery has been speedy in Q4 of FY 2016-17.

Notwithstanding temporary disruptions in consumer spending caused by demonetization, the sentiment of Indian consumers remained upbeat in FY 2016-17. As per a Nielsen survey on global consumer confidence, the majority of Indian consumers remained relatively optimistic about their personal finances, job prospects and spending capacity in comparison with their global counterparts. Falling cost of consumer credit and muted inflation further aided in boosting the consumer confidence. According to Euromonitor International, disposable incomes of Indian consumers increased by 12% in 2016 which resulted in a relatively strong demand for consumer appliances

Production index of consumer durables declined 2.1% in June 2017 over the year while declined by 4.8% over the month. The production index declined 0.9% during period April - June 2017 as against the 7.9% incline of April - June 2016.

Highest weigthage items - Cement- all types and bars and rods of mild steel has declined. Production of Cement- all types decreased by 5.96% in June 2017 compared with a 10.86% increase in June 2016. Production decreased by 3.01% during period April - June 2017 as against a 6% increase in the same period a year ago. Bars and rods of mild steel production decreased by 0.80% in June 2017 compared with a 9.73% increase in June 2016. Production grew 0.17% during period April - June 2017 as against a 9.69% incline in the same period a year ago.

Production of rubber insulated cables has shown highest growth, it has increased 173.37% in June 2017 compared with 28.47% decrease in June 2016. Production grew 82.28% during period April - June 2017 as against 21.20% decrease in the same period a year ago. Along with it, jelly filled cables and Pipes, tubes & casing of steel/iron saw good production growth. Production of jelly filled cables has increased 51.94% in June 2017 compared with a 6.02% increase in June 2016. Production grew 60.63% during period of April - June 2017 as against 0.86% increase in the same period a year ago. Production of Pipes, tubes & casing of steel/iron has increased 24.93% in June 2017 compared with a 13.27% decrease in June 2016. Production grew 8.59% during period of April - June 2017 as against 2.66% increase in the same period a year ago.

There was fall in production of ACSR conductors by 42.87% in June 2017 compared with a 11.08% increase in June 2016. Production de-grew 49.86% during period April - June 2017 as against 20.87% increase in the same period a year ago. Production of Flat products of alloy steel decreased 23.21% in June 2017 compared with a 25.08% decrease in June 2016. Production de-grew 14.52% during period April - June 2017 as against 30.46% decrease in the same period a year ago.

Onida turns to the devil, again

The brand is hoping to revive its lost magic with an old mascot. Onida is pitching its lot in with the devil one more time. With a new campaign, it plans to bring the iconic mascot back, albeit in a modern avatar. Mirc Electronics, which owns the brand, is hoping to revive Onidas fortunes by resurrecting the promise and the positioning that the brand successfully occupied over two decades back. However, this is the brands third attempt at a new life and given the proliferation of global brands that promise superior technological experience and service,

The devil made waves when it was first launched way back in 1983. It had a successful run through till 1999, a period that saw the Onida brand ride its peak. However as the markets opened up and international brands set their juggernauts rolling in the country, Onida took a big hit. Interestingly, even as the brand struggled, the popularity of the devil survived as did the tagline, Neighbours envy, owners pride. The messaging hit the spot with young consumers who connected with the tongue-in-cheek take on envy.

From an estimated 17% market share in 1995-96, Onida slipped to 10%of the TV market in 1996-97 and now has a near 8%. With help of devil, the company is looking at gaining its old popularity.

Outlook

Even after two and half decades of liberalization, Indian households severely lack the ownership of consumer durables. However, this trend is likely to change rapidly in future, driven by massive shift in urbanization, increasing disposable incomes, favourable demographics, high aspirations of the youth, burgeoning middle class and improving macroeconomic conditions make it a key market for consumer goods. Implementation of the 7th pay commission, rising employment opportunities on the back of heavy public spending, expectation of normal monsoon and the inflation targeted approach of the central bank may leave more disposable income in the hands of consumers. This will offer ample growth opportunities to the consumer-facing businesses of the Company. The demand for premium segment consumer appliances will be on the rise as the income level of both urban and semi urban households is expected to go up in future.

As per Bajaj Electricals annual report 2016-17, over next few years, the Indian consumer durable market is expected to touch US$ 20 billion-thereby growing at a compounded annualized rate of 13%. In FY 2015-16, it was valued at US$ 12.5 billion. So far, the market is dominated by the urban demand which constitutes 2/3rd of the total demand for consumer durable products. There is lot of scope for growth from rural market with the consumption expected to growth in these areas as penetration of brands increases. Also consumer durable goods are likely to witness growing demands in coming years in the rural markets as the government plans to invest significant in the rural electrification. The near term condition might pose a challenge but opportunities in the consumer durable sector continue to grow.