WPL's EBIDTA margin declined by 275bps YoY and 389bps QoQ to 3.63% in Q3FY13 due to sharp increase in RM cost like steel, copper & aluminum (up 83bps YoY and 579bps QoQ) and an increase in employee cost (up 19% YoY) against lower growth in revenues. Company's inability to pass on sequential increase in RM cost amid subdued economic environment dented QoQ gross margin performance.

The demand was impacted by lower consumer confidence amid sluggish macro-environment and sharp increases in product prices (15-20%) in last two years. As per industry estimates, sales of home appliances grew by roughly 5% in 2012. Air conditioner sales declined around 5%, while sales of refrigerators, microwave ovens and washing machines grew 4%, 8% and 6%, respectively. Urban areas that account for 70% of WPL's products consumption have witnessed a sharper dip in demand than rural counterparts.

Management Commentary

Company has observed severe pressure on pricing, considering that prices of their products have moved up 10 to 15% YoY. High prices have impacted off-take as consumer is seen battling inflation and thus resulting in weaker demand for home appliances.

Home appliances industry thrives on disposable income, and consumers chose to spend their money differently in this festival season. Diwali sales did not happen the way it usually happens for the home appliances industry resulting in a 2.3% QoQ fall in topline for WPL.

Usually in Dec quarter, dealers tend to buildup stock in the expectation of festive and holiday season sales. There is also a lot of promotional spend that takes place. So, net realisations do tend to be slightly lower in Dec quarter compared to other quarters. Lack of adequate sales to cover higher festive costs affected margins severely. However, the Market share has grown by almost two percentage points. So, overall their market position has strengthened.