Consumer Durable Products

Types of consumer durables:

Consumer appliances (White goods)

I. Air Conditioners
II. Refrigerators
III. Washing machines
IV. Microwave ovens
V. Cleaning machines
VI. Other home appliances
Consumer Electronics (Brown goods)
I. Televisions
II. Mobiles
III. Laptops
IV. Personal Computers
V. Digital Cameras
VI. AV systems
Gems and jewellery

Overall scenario:

The consumer durable market grew at a rate of 5.3% year on year during 2016-17 which was lower
than 5.5% of 2015-16. One of the main reasons for this is considered to be demonetization. In India,
the general trend to buy consumer electronics and appliances is via cash which was jeopardised a bit
by demonetisation as the cash flow was not there.
For the year 2017-18, some of the good factors in support to the industry are that the liquid cash can
again be seen in the market with the new notes coming in. The 7th pay commission is there to affect
positively to close to 10 million government employees as well as the pensioner which is going to
increase the base salaries and thus in turn improve their purchasing power. Inflation rate (CPI index)
is currently pegged at 4%. Stability in inflation, along with low interest rates (which are seen after
the demonetisation move) can also help to boost the market. Currently demand is expected to grow
at 7.8% y-o-y in 2017-18 in terms of volume. It is forecasted that the industry will be growing to 8.9%
in 2018-19 in terms of volume if the various macroeconomic factors help maintaining stability.

Expected growth (% change in volumes) for appliances:

Appliances 2016-17 2017-18(Expected to grow by)

Colour Television 1% 4-6%
Washing Machine 8% 10-11%
Refrigerators 7.5% 11%
Room air conditioners 10% 13%
Projected values of growth and volume sales as per CRISIL is as:

Viewing from the manufacturer/ dealer side of the consumer good, there are various factors
affecting their margins and in turn the profitability of the industry. These factors can be noted down
as:

Increasing input cost

Rating revisions by BEE (Bureau of Energy Efficiency)
GST (initially tax was in range of 25-30%, now it is fixed at 28% for majority of the consumer
goods)
Competition from new entrants forcing big players to change their prices a little

Colour Television
Key Highlights:

Year on Year growth by 1%

 LED/LCD displays replacing CRT panels at high rate

Videocon is expected to continue productions of CRT, whereas other players have shifted
gears.
Key drivers:

Innovation
Entry of new players like VU, Micromax, Intex
Various options of sizes and display available at affordable ranges for different categories of
customers
Discounts offered by online sellers and price wars (Flipkart and Amazon being largest online
CRT sellers)

Refrigerators:
Key highlights:

Refrigerator demand growth remained restricted at 8% y-o-y in 2016-17

It makes up 32% of consumer appliances segment
BEE’s rating raised the price of the both categories of the refrigerators (DC and FF), resulting
in slower growth rate (Prices of goods in the FF segment rose by 6-7% and in DC segment
rose by meagre 1-2% as ratings revision impacted cost. Price difference significantly
increased in 2016-17 by 13% compared to previous year.)
 refrigerator industry is estimated to have recorded a CAGR of 6.3% from 2011-12 to reach
about 11.6 million units in 2016-17

Key drivers:

rising spending power

low penetration(33% initially) giving wider customer base to tap in
rural base has grown from 11% to 19%
its importance increasing, from being a luxury to being a necessity
DC and FF category cater to consumers of all income groups with models in different sizes
Tier-ii and tier-iii cities becoming new targets for players like LG and Samsung
Tie ups of financial institutes (Bajaj Finance) and players giving added purchasing power to
consumer by offering zero interest EMIs

Washing Machines:
Key highlights:

Demand for washing machine grew by 7.9% y-o-y, demonetisation resulted into cash crunch
resulting in lowering of sales during the 2nd last quarter of FY 2016-17
Expectation is the segment to grow by 10-11% in FY 2017-18
Dip in volume growth in the years 2012-13 to 2013-14 is attributed to increased washing
machine prices, inflation and higher interest rates on loan/EMI
 
Semi- automatic and Fully automatic machine cater to different category of people, semi-
automatic for price sensitive crowd and fully automatic for others
Input cost gets affected by price of steel, copper and aluminium- which is why use of plastic
has increased

Key drivers:

Penetration of just 4% in rural market gives big market place to penetrate into
Growing manpower cost
Rising nuclear families
Replacement demand as life of a washing machine is between 6-10 years
Technology innovation by big players to generate brand loyalty
Entry of new players such as Gem, T-Series, Daenyx and Intex leading to price dip

Room air conditioners:

Key highlights:
In 2016-17 RAC segment grew by 10% on-year, similar to the growth in 2015-16
room air conditioners (RACs) have managed to penetrate only about 11% of households up
to 2016-17, which is much lower than the 25-30% figure at the global level
Valued at Rs118 billion the industry recorded a 11-12% y-o-y growth in 2016-17. Sales in the
SAC segment grew by 15-16% on-year, while that in the W AC segment grew by 1-2%
In 2016-17 the country imported 2.4 million units of RAC, which constituted 56% of the total
sales. The share of Split ACs and W indow ACs was 82% and 18% respectively in total
imports in 2016-17. India is yet not a manufacturing hub for RAC
LG, Voltas, Samsung, Carrier and Mitshubishi are some of the players in this segment of
consumer appliances.
 Market share for a company vs year:

The market share of the above mentioned appliances :

Gems and Jewellery:

The gems and jewellery industry deal with gold, diamond, gemstone, precious metals and pearls.
The Indian market is driven by gold and diamond in the value chain for in house use as well as
export. This industry contributed close to 15% share in country’s overall export in terms of value.
India is one of the largest processor of diamonds (even can process diamonds smaller than a carat).
These are majorly exported.

Majority of the export units have low profitability, whose reason can be attributed to intense
competition among exporters which lead to large credit period being offered to customers outside.
Thus the player rely heavily on short term bank loans to fund their payments to suppliers.
India is the largest consumer of gold in the world, Jewellery (worn at various occasions) constitutes
about two-thirds of total gold demand in India. Gold and gold jewellery also form an important
investment avenue in India as it is perceived to provide a hedge against inflation.
One of the major risks the players in this industry face a little difficulty is maintaining margins as the
raw material for this industry is majorly imported. Most export transactions are negotiated in US
dollars and fluctuations in the rupee tend to impact exporters' margins. Hence, managing foreign
exchange exposures to mitigate the allied risks is critical for Indian jewellery exporters. The gold -
import constitutes about 7-8% of total imports for India. Regulations by government and prices
internationally impact the gold import and thus also the price of the gold. Gold monetisation scheme
formulated in 2015 is with the view to lessen the gold import as much as much possible as the view
at that time gave a picture that India had close to 20000tonnes of gold which was nor traded neither
was monetised.
The established national players in the domestic retail business are Tanishq, Gitanjali, and Reliance
Jewels. Besides these, there are several large regional players as well such as Tribhovandas Bhimji
Zaveri and Thangamayil Jewellery Limited.
Some key exporters:

Key players in domestic market: