Analysis of Household appliances Industry

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• Color Television : CTVS Ø Recent Performance Ø Industry Structure Ø Industry Trends •Refrigerators Ø Recent Performance Ø Industry Structure Ø Industry Trends •Washing Machines Ø Recent Performance Ø Industry Structure Ø Industry Trends •RACs Recent Performance Industry Structure 2 Industry Trends

:3 : 12 : 17 : 41 : 48 : 53 : 68 : 75 : 79 : 91 : 98 : 101

• Demand Review and Growth Projections Ø CTVs Ø Refrigerators Ø Washing Machines Ø RACs • Costs and Profitability Analysis • Critical Success Factors • Impact Analysis • Player Profiles
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: 117 : 127 : 140 : 151 : 164 : 186 : 196 : 203

Color Televisions: Recent Performance

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Overview •Rising disposable incomes, growing aspirations of consumers, declining prices, shrinking replacement cycle for colour televisions (CTVs) helped the industry increase at a 5 per cent CAGR during 2006-07 to 2011-12. •However, in 2011-12, colour television sales (volume terms) declined by 1.3 per cent y-o-y to 12.8 million units. •This was mainly due to decline in sales of conventional colour TVs (CCTV) and flat colour TVs (FCTVs) by 28 per cent and 8 per cent, respectively and also due to slower growth in LCD segment. •Also high inflation and rising interest rates combined with weak consumer sentiment put pressure on the demand during 2011-12.

LCD,LED segment record strong growth •The CCTV segment has been steadily losing ground in the past few years mainly due to the narrowing price differential between CCTVs and FCTVs and the comparative advantages offered by the latter segment. •In 2011-12, share of CCTVs, with total sales volume of 1.4 million units, declined to 11 per cent from 15 per cent in 2010-11. •During the same period, FCTV sales also declined by 8 per cent y-o-y to reach 7.7 million units. •FCTV sales in urban areas declined mainly due to shift in customer preference for LCD and LED TVs. •Consumers in rural and semi urban areas have been deferring their purchase in order to buy a ultra slim TV . Consequently, share of FCTV in total sales declined by 400 basis points to 60 per cent during the year.

Sales volume

Sales volume •LCD, LED and Plasma TV segments grew strongly by 38 per cent y-o-y mainly due to robust demand from first time buyers and consumers seeking to replace or upgrade their old TV sets in urban areas. •Falling prices along with high perceived utility (lower space requirement, better image quality) has resulted in consumer preference in urban areas shifting towards LCDs from FCTVs. •Share of LCD,LED and plasma TV segment increased to 29 per cent in 2011-12 from 20 per cent in 2010-11. •However the growth was not upto potential of this segment due to weak consumer sentiment as well as lack of focus by manufacturers of panel TV towards 22-26 inch segments which had a significant demand.

Sales value

Sales value •In value terms, the CTV industry recorded a growth of around 8 per cent y-o-y in 2011-12. •The market size of the CTV industry reached Rs 148 billion in 2011-12 from Rs 138 billion in 2010-11.

Changing segmental mix

LCD TVs rapidly gaining market share •The LCD segment has been expanding at a remarkable pace, clocking a growth of 98 per cent CAGR during the period 2006-07 to 2011-12. •While high growth rates have been achieved on a low base, steep price declines (1520 per cent y-o-y) have also contributed to the growing preference for LCDs over conventional models in urban areas. •Apart from falling prices, rising disposable incomes, tangible benefits of LCDs over the conventional models, higher distribution reach have aided growth in LCD sales.

CTVs: Industry Structure

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• The CRT TV industry is highly consolidated, with the top three players controlling around 75 per cent of the market. • With consumer preference in urban areas shifting towards panel TVs, new players are not entering the CRT TV segment. • Korean players clearly dominate this segment, and their share has significantly increased over the years. • In the last 2 years, LG and Samsung have gained market share at the cost of unorganised players.

Market share - CRT TV ( Conventional CTV, Flat CTV )

Market share - CRT TV ( Conventional CTV, Flat CTV ) •In the panel TV segment, the top three players (LG, Samsung, and Sony) together accounted for around 71 per cent of the market. •The share of the top 3 players has declined from 78 per cent in 2007-08 due to aggressive pricing by smaller players like Panasonic, Toshiba in order to gain market share.

Market share - Panel TV ( LCD, LED, Plasma )

CTV: Industry Trends

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LCD TV segment records healthy growth •The share of conventional colour televisions (CCTVs) in total sales declined sharply from 39 per cent in 2006-07 to 11 per cent in 2011-12 due to shift in consumer preference towards flat colour television (FCTVs) in rural and semi urban areas and panel TVs (LCD, LED, Plasma TVs) in urban areas. •A reduced focus on the CCTV segment by manufacturers, and the declining price •difference between the conventional and flat CTVs have driven the shift. While FCTVs accounted for around 60 per cent of the total television industry, its share is also declining due to demand for panel TVs. •From 2006-07 to 2011-12, the Panel TV segment increased at a strong CAGR of 90 per cent in volume terms.

LCD TV segment records healthy growth •Falling prices along with high perceived utility (lower space requirement, better image quality) helped the LCD/LED segment record a strong growth. •To improve margins and realisations, many players have also shifted focus to the FCTV and LCD, LED segments. •The number of model launches and promotional activities in LCDs and LEDs (vis-avis CCTV) exemplifies this fact.

Segmental mix - CTVs

LED TVs- future of LCDs •Light emitting diodes (LED)-backlit LCD TVs have garnered significant demand in the thin film transistor (TFT) LCD market due to their rapid adoption in notebook PC displays and the high potential of adoption in LCD TV panels. •LEDs use low electricity, contain no mercury and are made of environment-friendly products.

LCD vs LED

LCD vs LED

(Import data for colour television is not available after 2007-08) Cost structure Raw materials constitute a major proportion (80-85 per cent) of total costs of a colour television followed by selling and distribution expenses (8-10 per cent).

CTV - Cost break-up

CTV - Cost break-up •While CCTV and FCTVs use Cathode Ray Tube (CRT) technology, LCDs and LEDs use Liquid Crystal Display technology. •Consequently, there is a major difference in components used for CCTVs, FCTVs and LCD,LED TV segments. •For a CCTV, FCTV colour picture tube (CPT) and chassis (PCB where all the electronic and electrical components are mounted) form around 84 per cent of the total raw material cost. •Other components include a plastic cabinet and accessories like remote, tuner and speakers.

CTV - Cost break-up •While CPT is bought from local suppliers or imported, most CTV players manufacture other components on their own. •CPT majorly dictates the price of CCTV and FCTV. •As CPT prices have remained stable in 2010-11, CTV prices remained almost flat as •compared to the last year.

CCTV, FCTV - Raw material cost break-up •In case of a LCD, LED TV, the display panel forms around 75 per cent of the total raw material cost. •These panels are mainly imported from Korea, Thailand and China. •Panel prices have been declining by 15-20 per cent every year over the last 3-4 years. Therefore, LCD/LED TVs prices are also falling by approximately the same amount, as players are passing on the entire benefit to consumers given intense competition. Apart from the panel, other components include framework and structural parts like •the cabinet, accessories like remote etc.

LCD, LED - Raw material cost break-up

CTV : Monthly Performance

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Review Panel TV registers 40 per cent growth in May 2012 •Panel TVs comprising LCD, LED and Plasma TVs recorded a growth of 40 per cent yo-y in May 2012. •Sales grew at a healthy pace during the month after witnessing relatively slower growth of around 30 per cent over the last 4-5 months due to weak consumer •sentiment. •Share of panel TVs in overall sales increased from 21 per cent to 28 per cent y-o-y in volume terms as the CRT segment witnessed a 8 per cent decline in sales.

Sales in CTV segment remain flat during April-May 2012 •Total colour television sales remained flat during April - May 2012 with respect to the same period previous year. •While CRT TV (comprising Conventional colour TVs, Flat colour TVs) which accounts for around 70 per cent of total CTV sales witnessed a decline of 10 per cent yo-y, panel TVs grew at a healthy pace of 35 per cent. •Shortage of colour picture tubes for CRT TVs as well as shift in consumer preference towards panel TVs in urban areas resulted in decline in CRT TV sales.

Panel TVs continue to show healthy growth

Panel TVs continue to show healthy growth

Panel TV monthly sales trend

CRT TVs - Share of organised segment increases by 500-550 basis points •The market share of top 4 players in the CRT TV segment was higher by around 500 basis points to reach 89 per cent during April-May 2012 as compared to the previous year. •During the period, LG was the biggest gainer with a 400 basis point y-o-y increase in share, while market share of Videocon increased by 100 basis points y-o-y. Onida and Samsung maintained their share at 9 per cent and 25 per cent, respectively. •The gain in market share by these players has largely been at the cost of the unorganised segment. •On month on month basis, the share of major players was stable.

CRT TV market share (per cent)

Panel TVs - Share of Sony drops; Toshiba, LG gain •In case of Panel TVs, Sony lost significant market share while Toshiba was the biggest gainer year on year. •While market share of Sony dropped by 450 basis points, share of Toshiba increased by almost 400 basis points. •LG was the market leader with 24 per cent share, followed by Samsung at 23 per cent. Share of Panasonic stood at 7 per cent, 200 basis points higher than the previous •year.

Panel TV market share

Panel TV market share •In spite of depreciation of rupee against the dollar over the last few months, there has not been any increase in the prices of Panel TVs. •Going forward, due to currency depreciation, price of panel TVs is expected to rise by 4-5 per cent.

Refrigerators: Recent Performance

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Overview •Demand for refrigerators increased at a CAGR of 12 per cent during 2006-07 to 201112. •While the direct cool (DC) segment expanded by 12 per cent CAGR, the frost free (FF) segment witnessed a marginally higher growth of 13 per cent during the period. •In value terms, the refrigerator industry grew at a CAGR of 18 per cent.

Refrigerators sales volume

Refrigerators sales volume •In 2011-12, the refrigerator industry constituted 27 per cent of the household appliance industry, which was valued at Rs 348 billion. •During the year, refrigerator sales increased by around 8 per cent y-o-y to reach 7 million units. •In value terms, the industry grew by 19 per cent y-o-y to Rs 95 billion.

Refrigerators sales value

Refrigerators sales value •Demand for refrigerators in 2011-12 grew at a relatively slower pace as compared to the previous two years largely due to weak consumer sentiment arising out of rising interest rates, high inflation and increase in refrigerator prices triggered by a rise in input costs. •Rise in refrigerator prices due to higher input costs as well as depreciation of rupee against the dollar by around 10 per cent resulted in lower demand.

Refrigerators average realisations

Refrigerators: Industry Structure

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• The refrigerator industry has traditionally been a concentrated industry, dominated by five major players with market share of around 95-97 per cent. • Over the past 3-4 years, players have been successful in maintaining their market share in the industry. • LG has continued to remain the market leader during the last 5 years and accounted for 31 per cent of the refrigerator segment in 2011-12.

Overall Market Share Refrigerators

Change in Market Share

Change in Market Share •While LG & Samsung have continued to maintain their market leadership, even increasing it this year, the underperformers have been Godrej & Whirlpool. •The Korean Chaebols have continued to invest aggressively in product development, new product launches along with new technologies. •This combined with their focus in the downstream value chain along with investments in marketing started paying dividends for the companies.

Refrigerators : Industry Trends

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Direct cool (DC) segment holding on its ground •The contribution of frost free (FF) refrigerators to total sales steadily increased during the 2002-03 to 2007-08 period owing to the narrowing price differential and changing consumer preferences mainly in urban areas for the segment. •However, post 2007-08, both these segment started growing at a similar pace mainly due to increased focus by household appliances players on DC in rural and semiurban areas. •To function efficiently, frost free refrigerators need uninterrupted power which is available in most large urban areas. •This, however restricts demand for the segment in areas lacking continuous power supply.

Direct cool (DC) segment holding on its ground •Therefore, while FF refrigerators are largely preferred in the urban areas, the DC segment caters to rural and semi urban areas with frequent power outages. •Going forward, Research expects the same trend to continue and a segmental shift is highly unlikely in refrigerator segment.

Segmental mix - Refrigerators

Segmental mix – Refrigerators •In 2011-12, the frost free (FF) segment grew at a slightly higher pace of 10 per cent as against a growth of 7 per cent in direct cool (DC) segment. •As the DC segment caters to rural areas, hence price increase led to demand destruction among the price sensitive consumers resulting in a slower growth rate in 2011-12.

Refrigerators - Segment-wise growth rates

Exports •India's refrigerator exports increased to 613,000 units in 2009-10 from 285,160 units in 2006-07, a CAGR of 29 per cent. •This rise in export volumes was supported by a healthy demand from key nations like Australia and UAE. •On contrast in 2010-11 exports declined significantly mainly due to the global economic crisis and weakening of demand from almost all the key nations. •Share of exports in total sales declined from 11 per cent in 2009-10 to 5 per cent in 2010-11. •For the first 6 months of 2011-12, refrigerator exports stood at 204,430 units.

Export volume

Export volume •Australia and UAE are major exporting destinations for India and accounted for 19 per cent and 11 per cent of total exports, respectively, in 2010-11.

Share of India's exports

Imports •Refrigerator imports accounted for only 1 per cent of overall sales in 2010-11. •During the year, India imported around 69,940 units as against 66,750 units in 200910. Highly competitive domestic prices of refrigerators have restricted imports over the years. •China, Denmark and Germany are the key suppliers for India.

Cost structure •Raw material cost constitutes a major proportion (69 per cent) of the total costs. Major cost components in a refrigerator are compressor, condenser & evaporator and thermal insulation material, which account for around 62 per cent of total raw material costs. •Other components include metal used for making cabinet and door and plastics used for making large interior fixtures. •Steel, copper, aluminium and plastic are major raw materials used for manufacturing these components.

Refrigerator - Cost structure

Raw material cost breakup

Raw material cost breakup •Selling and distribution expenses is the second largest cost component, as companies invest huge amounts to sustain or increase their market share due to intense competition.

Washing Machine: Recent Performance

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Overview •The washing machine industry in India has been growing significantly with changing consumer mind sets and lifestyles. •In volume terms, the industry has increased at a CAGR of 12 per cent during 2006-07 to 2011-12. • During this period, while the fully automatic segment increased at a CAGR of around 17 per cent, the semi-automatic segment increased at a relatively slower rate of 10 per •cent. •The falling price differential between high-end semi-automatic washing machines and top-loading fully automatic machines and the advantage of minimal user intervention has triggered the growth of the latter. •Overall washing machine sales increased at a CAGR of 18 per cent in value terms during 2006-07 to 2011-12.

Sales volume

Sales volume •In 2011-12, washing machines recorded a volume growth of around 8 per cent y-o-y to 3.4 million units. •While the semi-automatic segment grew by 6 per cent y-o-y, the fully automatic segment expanded by 12 per cent y-o-y. •After witnessing over 10 per cent growth in the last two years, demand grew at a relatively slower pace in 2011-12 due to weak consumer sentiment arising out of •high inflation,rising interest rates, and increase in washing machine prices triggered by an increase in input costs.

Sales value

Sales value •Valued at Rs 38 billion in 2011-12, the washing machine industry accounted for around 11 per cent of the total value of the household appliances industry. •During the year, the industry grew by around 18 per cent y-o-y in value terms, with the semi-automatic and fully automatic segment recording a growth of 15 per cent and 20 per cent, respectively. •Sales in value terms surpassed volume growth due to a segmental shift towards the higher value fully automatic segment and an increase in raw material prices which were passed on to a large extent. Overall realisations increased by around 9 per cent.

Washing machines - Average realisations

Washing Machine: Industry Structure

Industry Structure •The washing machine industry is highly concentrated, with around four players accounting for 70-75 per cent of the market. •Two Korean brands - LG and Samsung - constituted 47 per cent of the market share in 2010-11. •Product innovation, right pricing and a widespread distribution network have enabled LG to remain the leader over the past 5 years. •As in other segments, LG and Samsung have been at the forefront in terms of market shares. •While LG gained market share in the washing machine segment by 255 basis points in 2010-11, Samsung and Whirpool witnessed a decline. •Videocon's market share also declined in 2010-11 by 174 basis points to 13 per cent.

Overall Market Share - WMs

Overall Market Share - WMs

Washing Machines : Industry Trends

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Segmental shift towards fully automatic segment •Changing lifestyles in urban areas, has resulted in a gradual shift in demand to fully automatic washing machines (WMs) from semi-automatic ones. •While semi-automatic machines need manual involvement 2-3 times during the wash process, fully-automatic machines require no such involvement; this suits the needs of working class in large urban areas. •In 2011-12, while the fully automatic (FA) segment contributed 36 per cent in volume terms, it contributed to more than half of the industry value on account of higher realisations.

Segmental mix - WMs

Exports •India is not a major exporter of washing machines. •In the past 5 years, share of exports in total sales has remained in the range of 1 to 3 per cent. In 2009-10, exports declined significantly to 19,270 units from a peak of 76,610 units in 2008-09. Exports for the period 2010-11 stood at 24,370 units.

Imports •In 2010-11, imports increased to 463,020 units from 159,180 units in 2006-07 ( a CAGR of 31 per cent). •The year 2010-11 saw a significant rise in the imports of washing machines. •Imports stood at 15 per cent of total sales as against 8 per cent in the previous year and fully automatic washing machines made up 75 per cent of total imports. •The rise was mainly due to the increase in imports from China and Thailand. •For the first 6 months of 2011-12, WM imports stood at 244,580 units.

Washing machine - Import volumes •In 2010-11, China, South Korea and Thailand together constituted around 92 per cent of total WM imports with China alone •constituting almost 76 per cent. South Korea's share in total imports have increased from 2 per cent in 2007-08 to 8 per cent in 2010-11. •However, during April-September 2011, China's share in India's WM imports stood at 72 per cent .

Share of India's Imports

Cost structure Raw materials constitute a major proportion of total costs (80-85 per cent) of a washing machine followed by selling and distribution expenses (8-10 per cent).

Washing machine: Cost structure

Washing machine: Cost structure •Major components of a WM are electric motor, metal parts including drum, body and transmission system. •These account for 55 per cent of the total raw material costs. •Other components include plastic parts and electronics like printed circuit board (PCB) which constitute 20 per cent and 15 per cent, respectively. •Steel, aluminium and plastic are major raw materials used in the manufacturing •of these components. •Prices of these raw materials have increased sharply in 2011-12. •However, given the competitive scenario, washing machine manufacturers have not been able to pass on the entire increase in input costs to consumers.

Raw material break-up

Raw material break-up •Selling and distribution expenses make up the second largest cost component for WMs, as companies invest huge amounts to sustain or increase their market share and remain competitive. •As WM is a relatively low-penetrated product, the success of any player also depends on their distribution and promotional efforts.

RAC: Recent Performance

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Overview •RAC's have been the fastest growing segment in the household appliances industry mainly due to its low penetration in comparison to others. •Also with growing aspirations, increasing purchasing power and competitive pricing, air conditioners sales have improved significantly over the last few years. •In urban areas, air conditioners are increasingly being perceived as a utility item rather than a luxury item. •The room air conditioner (RAC) industry registered a compounded annual growth (CAGR) of around 13 per cent in volume terms during 2006-07 to 2011-12. •During this period, the split AC (SAC) segment grew at 20 per cent while the windows AC (WAC) segment grew at 7 per cent. SAC segment's share increased to 55 per cent in 2011-12 from 41 per cent in 2006-07.

Sales volume

Sales volume •In 2011-12, the overall room air conditioner industry declined by 6 per cent in volume terms. •The SAC segment declined by 4 per cent while the WAC segment which was under more pressure declined by 7 per cent. The decline in RAC sales was largely due to •two reasons i.e. unfavorable weather and sharp rise in prices. •Demand for RAC's is highly seasonal in nature with over 45 per cent of its sales occurring during March-May period. •In 2011-12, summer was relatively cooler in most parts of the country and the rains •came early which impacted the demand. Rise in RAC prices due to higher input cost as well as depreciation of rupee against the dollar further impacted the demand.

Sales value

Sales value •Valued at Rs 67 billion in 2011-12, the RAC industry constituted almost 19 per cent of the total value of the household appliances sector. •In value terms, the industry recorded a marginal growth of 1 per cent y-o-y in 201112. SAC segment grew by 3 per cent while the WAC declined by 1 per cent. •Sales in value terms surpassed volume growth due to a segmental shift towards higher value split AC segment as well as an overall increase in prices. •This resulted in an increase in average realisations by around 7 per cent in 2011-12.

Average realisations

RAC: Industry Structure

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• In the residential air conditioner segment, the top three players accounted for around 50-55 per cent of the market in 2011-12. • Players like LG, Voltas, and Samsung are large players in the air conditioning market. However, these players have been struggling to hold on to their market share over the years as many players have emerged in the market making air conditioners the most competitive segment in the household appliance industry. • Videocon, Bluestar, Daikin, Hitachi, Onida are some of the other players in the industry.

Overall Market Share - ACs

RAC: Industry Trends

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Segmental shift towards split AC's •From 2006-07 to 2011-12, the split AC (SAC) segment expanded at a CAGR of around 20 per cent (volume terms) in contrast to a 7 per cent CAGR of the window AC (WAC) segment. •The SAC segment's growth has been increasing on the back of an rise in disposable incomes and the narrowing price differential between the two segments (entry level SACs are priced slightly higher than the premium WAC segment).

Segmental mix by volume - RACs

Segmental mix by volume – RACs •In value terms the SAC segment had grown at a CAGR of around 22 per cent between 2006-07 to 2011-12 as against a 11 per cent CAGR of the WAC segment during the same period. •Better aesthetic appeal and lower noise levels are leading factors resulting in greater preference for Split AC's inspite of its price being higher than that of a Window AC. However price sensitive consumers are likely to drive demand for window AC's.

Segmental mix by value - RACs

Exports •Unlike low cost manufacturing locations like China, Thailand and Malaysia, India is not a major manufacturing hub for RACs. •Most of the players perform assembly operations or import ACs as completely built units (CBUs) to cater mainly to the domestic demand. •As a result, exports account for a marginal 2-3 per cent of total AC sales in India. India's export of RACs declined to 38,920 units in 2010-11 from 88,430 units in 2009-10 largely due to an increase in prices of AC's. •In the first 6 months of 2011-12, exports stood at 22,810 units.

Imports •Imports of RACs grew at a much faster pace of 51 per cent during 2006-07 to 2010-11 as compared to 18 per cent growth of domestic RAC industry during the same period. •The healthy growth of imported ACs during the last 5 years can be attributed to the difference between the landed cost of imported ACs and ACs assembled in India. •Prices of imported ACs are on an average 5-10 per cent lower than ACs assembled in India. •Imports of RACs stood at 834,000 units during the period April-September 2011.

RAC import volumes

RAC import volumes •Imports of split and window AC segments grew at a CAGR of 52 per cent and 50 per cent respectively during 2006-07 to 2010-11. •In 2010-11 share of WAC imports in total sales increased to 32 per cent from 16 per cent in 2009-10. •On the other hand share of imported SACs in total sales increased to 43 per cent in 2010-11 from 22 per cent in 2009-10. •China and Thailand together constituted 88 per cent of India's import in 2010-11. Malaysia's share in India's import has also been steadily rising from a negligible share in 2007-08 to 5 per cent in 2010-11.

Share of India's imports

Cost structure •Raw materials constitute a major proportion of the total costs of a room air conditioner followed by selling and distribution expenses. •The former accounts for about 70-75 per cent of total operating costs while selling and distribution contribute 10-12 per cent.

RAC - Cost structure

RAC - Cost structure •Compressor, condenser and evaporator and electric motor are some of the critical components of an AC, accounting for around 62 per cent of total raw material expenses. •While some players manufacture compressors, most of the players import the same from other countries. •Major raw materials used for manufacturing these components are steel, copper, aluminium and also plastic. •Prices of all these raw materials increased sharply in 2011-12. •However, given the competitive scenario, air conditioner manufacturers have been unable to pass on the entire increase in input costs to consumers.

Raw material break-up

Raw material break-up •Selling and distribution expenses is the second largest cost component as companies are investing huge amounts to sustain or increase their market share and remain competitive in the industry. •With more than 20 players operating in the industry, creating brand awareness and recognition becomes imperative.

Demand Review and Growth Projections : CTVs

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Strong growth in panel TVs to drive CTV demand
Industry posts 5 per cent growth during 2006-07 to 2011-12 •The colour television industry (CTV) comprising the cathode ray tube TVs (CRT TV includes conventional and flat colour televisions) and panel TVs (includes LCD/LED and plasma TVs) grew at a CAGR of 5 per cent during 2006-07 to 2011-12 to reach 12.8 million units. •Conventional CTV sales declined significantly during the period, as consumers preferred Flat CTVs and Panel TVs. •Demand for Flat CTVs came largely from price sensitive consumers in semi urban and rural areas while demand for high-priced Panel TVs came from metros and mini metros. •As on 2011-12, around 65-70 per cent of the Panel TV sales came from the top 10 cities. Rising incomes, increasing affordability, shorter replacement cycles, relatively under penetrated rural markets and an increase in the number of households owing multiple CTVs are the main factors driving demand for the colour television industry.

sales to improve subsequently •In 2011-12, overall CTV sales declined by 1 per cent y-o-y to 12.8 million units largely due to weak consumer sentiments given the high inflation and rising interest rates. With household expenses increasing, consumers delayed the purchase of discretionary items like CTVs. CRT TV sales fell sharply by 12-13 per cent y-o-y as the demand in urban areas had shifted to Panel TVs , whereas in the rural market, price •sensitive consumers postponed their purchases due to the increase in the prices of CRT TVs . •Although panel TV sales witnessed a healthy growth of around 38 per cent during the year, it was much lower than the growth achieved in the previous 2-3 years. •Apart from weak consumer sentiments, less focus by panel TV manufacturers on 2226 inch segments where demand was significant also resulted in lower sales.

Demand impacted due to weak consumer sentiments in 2011-12; sales to improve subsequently •In 2011-12, overall CTV sales declined by 1 per cent y-o-y to 12.8 million units largely due to weak consumer sentiments given the high inflation and rising interest rates. With household expenses increasing, consumers delayed the purchase of discretionary items like CTVs. CRT TV sales fell sharply by 12-13 per cent y-o-y as the demand in urban areas had shifted to Panel TVs , whereas in the rural market, price •sensitive consumers postponed their purchases due to the increase in the prices of CRT TVs . •Although panel TV sales witnessed a healthy growth of around 38 per cent during the year, it was much lower than the growth achieved in the previous 2-3 years. •Apart from weak consumer sentiments, less focus by panel TV manufacturers on 2226 inch segments where demand was significant also resulted in lower sales.

Demand impacted due to weak consumer sentiments in 2011-12; sales to improve subsequently •With the inflation expected to come down, consumer sentiments are set to improve in 2012-13. Consequently, we expect CTV sales to recover and grow by around 2 per cent y-o-y to 13 million units. •In the CRT segment, growth in sales is expected only in the ultra slim TVs (the latest FCTV models which are 40 per cent slimmer than normal FCTVs and account for 45 per cent of overall CRT sales) segment, while sales in the other segments are expected to decline. Panel TVs will also grow by 31 per cent y-o-y during the year.

Colour Television - Volume growth

LCDs, LEDs to drive overall CTV demand •The decline in LCD panel prices in the last 3-4 years has triggered a decline in the prices of LCD TVs by more than 10-12 per cent annually since 2007-08. •Falling prices along with high perceived utility (lower space requirement, better image quality) has resulted in more and more consumers in urban areas preferring Panel TVs (LCD/LEDs account for more than 95 per cent of panel TV sales). •Going forward, consumers in urban areas who want to replace or upgrade their TVs are likely to opt for panel TVs. •Therefore, the panel TV segment is expected to register a CAGR of 27 per cent in volume terms to reach 12.2 million units in 2016-17. •Currently, panel TVs account for 29 per cent of the total CTV sales, whereas CRT TVs account for the remaining 71 per cent.

LCDs, LEDs to drive overall CTV demand •However, the former's share is expected to increase to 64 per cent by 2016-17. •Research expects panel TV prices to decline further by 6-7 per cent annually till 201617 owing to a strong growth in volumes. •While prices are expected to decline, overall CTV realisations are likely to increase by 3 per cent during the period due to a shift in segmental mix in favour of higher value LCD, LED and Plasma TVs. •The share of LCD, LED, and Plasma TVs (in value terms) is expected to increase to 81 per cent in 2016-17 from 58 per cent in 2011-12.

Shifting consumer preference for panel TVs to lead to a decline in CRT TV demand •The share of CRT TVs is expected to decline to 36 per cent in 2016-17 due to the growing preference for panel TVs. •While CCTV sales are expected to decline at a CAGR of 28 per cent over the next 5 years, FCTV sales are likely to decline at 3 per cent CAGR during this period. •Ultra Slim TVs are expected to drive the growth in the FCTV segment. •Ultra Slim TVs, which currently account for around 45 per cent of the FCTV sales, are likely to grow by 9 per cent during the next 5 years. •As the price differential between a normal FCTV and an Ultra Slim TV is not more than Rs 1,000, there is increasing consumer preference for the latter. •The FCTV segment is expected to mainly cater to price sensitive consumers in the semi urban and rural markets.

Segmental Value and Volume Mix

Demand Review and Growth Projections: Refrigerators

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Refrigerators to witness healthy volume growth over next 5 years Demand for refrigerators grew at a robust pace between 2006-07 and 2011-12 •The refrigerator industry, comprising direct cool (DC) and frost free (FF) segments, grew at a CAGR of 12 per cent from 2006-07 to reach 7.1 million units in 2011-12 . After growing at around 10-11 per cent during 2006-07 and 2007-08, growth slowed down relatively (9 per cent) in 2008-09. •With an improvement in the economic scenario, sales picked up and grew at a CAGR of 17 per cent between 2009-10 and 2010-11 . •Demand slowed down again in 2011-12 due to weak consumer sentiments. •Rising household incomes, increasing nuclearisation and the relatively lower penetration levels as compared to colour televisions drove refrigerator demand during the last 5 years.

Refrigerators to witness healthy volume growth over next 5 years Demand for refrigerators grew at a robust pace between 2006-07 and 2011-12 •While the DC segment caters to price sensitive consumers in the semi urban and rural areas, demand for the FF segment is largely urban centric. •High prices and lack of a steady power supply have been hampering the growth of the FF segment in semi urban and rural areas.

Refrigerator - Volume growth

Lower sales in 2011-12 due to weak consumer sentiments; sales to improve in 201213 •During 2011-12, refrigerator demand grew at a relatively slower pace of 8 per cent due to rising interest rates, high inflation, rise in refrigerator prices due to depreciation of rupee against the dollar as well as higher raw material costs, which together impacted demand. •Sales of the DC models, which cater to the price sensitive consumers in the semi urban and rural areas, grew at 7 per cent as compared to 10 per cent in the FF segment. Refrigerator prices rose by around 9-10 per cent during the year over and above the 10 per cent increase in 2010-11. •In value terms, refrigerator sales touched Rs 95 billion in 2011-12.

Lower sales in 2011-12 due to weak consumer sentiments; sales to improve in 201213 •However, demand is likely to be relatively better in 2012-13 with an expected improvement in consumer sentiments. •Prices of major raw materials used for making refrigerators are expected to moderate during the year. •Refrigerator prices, as a result, are expected to rise only by 3-4 per cent (2 per cent rise due to hike in excise duty) as compared to the 8-9 per cent seen in the previous 2 years. •An expected drop in inflation levels is expected to improve the disposable income of the target market and encourage refrigerator sales to pick up in 2012-13. Consequently, we expect sales to grow by 10 per cent y-o-y to 7.8 million units

Lower sales in 2011-12 due to weak consumer sentiments; sales to improve in 201213 •during the year. While the FF segment is expected to grow at 12 per cent y-o-y, the DC segment will grow by 9 per cent during the year. •In value terms, the segment is expected to grow by 15 per cent y-o-y to touch Rs 109 billion in 2012-13.

Long-term demand to grow at a robust pace over the next 5 years •After the slow growth of 8 per cent seen in 2011-12, we expect sales to grow at a higher pace of 12 per cent (CAGR) during 2012-13 and 2013-14 following an expected improvement in the economic scenario (low inflation, stable interest rate, •and relatively stable prices). •Refrigerator sales are expected to gain further momentum and clock a CAGR of 14 per cent over the 2013-14 to 2016-17 period. •Overall, Research expects long-term (2011-12 to 2016-17) refrigerator demand to grow at a robust pace of 13 per cent (CAGR) to reach 13 million units in 2016-17. •During this period, the FF segment is expected to grow at 15 per cent, whereas the DC segment is likely to witness a slightly slower rate of growth of 12 per cent.

Long-term demand to grow at a robust pace over the next 5 years •With average realisations rising by 3 per cent due to an increase in raw material prices, refrigerator sales in value terms are expected to grow at a CAGR of 16 per cent over the next 5 years. •In value terms, the market size of industry is likely to cross Rs 200 billion in 2016-17 from Rs 94 billion in 2011-12.

Refrigerator - Value growth

Change in segmental mix to be minimal as compared to CTVs •For most household appliances, there is a rapid growth for products with latest technologies in comparison to products with older technologies. •Refrigerators, however, are an exception. •Both the segments - direct cool and frost free are expected to grow at a healthy pace over the next 5 years. •As a result, we do not expect a significant shift in share towards the frost free segment. •Growth in the frost free segment is likely to be driven by both first time sales as well as replacement demand, largely in the urban areas.

Segmental volume and value mix

Segmental volume and value mix •The direct cool models are still preferred in the semi urban and rural areas due to the their availability at lower price points and the better space utilisation they offer and their ability to preserve food for longer duration as compared to the FF models in times of power failure. •As a result, we expect the share of direct cool segment in the overall sales volumes •to decline only marginally in 2016-17. •In value terms as well, we do not expect a significant change in segmental mix.

Demand Review and Growth Projections: Washing Machines

140

Robust demand for washing machines over the next 5 years Demand for washing machines grew at a healthy pace between 2006-07 and 2011-12 •The washing machine (WM) industry, comprising semi automatic (SA) and fully automatic (FA) machines has grown at 12 per cent CAGR between 2006-07 and 201112 to reach 3.4 million units. •Rising household incomes, growing number of nuclear families and low penetration levels have driven the demand over the years. •After increasing at a compounded annual growth of over 15 per cent between 200506 and 2007-08, demand slowed down in 2008-09 due to the global economic crisis. Following a subsequent improvement in the economic scenario, sales picked up in 2009-10 and 2010-11, and grew at a CAGR of 15 per cent.

Robust demand for washing machines over the next 5 years Demand for washing machines grew at a healthy pace between 2006-07 and 2011-12 •However, demand slipped once again in 2011-12, affected by weak consumer sentiments. •Demand for both the segments (semi and fully automatic WMs) comes largely from urban and semi urban areas. •While the semi automatic segment caters to price sensitive consumers in semi urban areas, demand for FA machines comes primarily from the metros and mini metros. Although growth in the FA segment has outpaced growth in the SA segment over the last 5 years, higher prices and running water requirement has curtailed the growth of FA machines in semi urban areas.

Weak consumer sentiments pull down sales growth in 2011-12; demand to improve going forward •During 2011-12, washing machine demand grew at a relatively slower pace of 8 per cent because of rising interest rates, high inflation and increase in washing machine prices following the depreciation of the rupee against the dollar. Washing machine prices rose by around 7-9 per cent during the year over and above the 6 per cent rise in 2010-11. •Sales of SA models, which cater to the price sensitive consumers, grew at 6 per cent, whereas the FA segment grew by 12 per cent.

Washing Machine - Volume growth

Washing Machine - Volume growth •However, demand is likely to be relatively better in 2012-13 as consumer sentiments are expected to improve. •We expect sales to grow by 10 per cent y-o-y to 3.7 million units during the year. •In addition, with the expected moderation in inflation, WM demand is also expected to improve. •Although the prices of key raw materials are likely to moderate in 2012-13, a 2 per cent hike in excise duty and an increase in other operating costs are expected to lead to an increase in the price of WMs. •However, the price increase will be limited to 4 per cent y-o-y as against 7 per cent (y-o-y) in the 2010-11 to 2011-12 period. •In value terms, the segment is expected to grow by 16 per cent y-o-y to Rs 45 billion in 2012-13.

Sales to reach 6 million units by 2016-17 •We expect the long-term demand for washing machines to grow at a CAGR of 12 per cent over the next 5 years to reach 6 million units in 2016-17, driven by rising household incomes, growing number of nuclear families, increasing urbanisation and the still low penetration levels. •Average realisations are expected to increase by 4 per cent led by a rise in raw material prices as well as a gradual shift in consumer preference towards FA machines. •In value terms, the industry is expected to increase at a CAGR of 16 per cent to Rs 81 billion in 2016-17. •Growth in the FA segment is likely to be higher than the growth in the SA segment.

Washing Machine - Value growth

FA segment to grow at faster pace than SA segment •As compared to other consumer durables such as CTVs and refrigerators, the penetration of washing machines in the country is lower, with the urban areas accounting for a major part of the demand. •In urban areas, consumers are increasingly preferring FA machines despite their higher prices, as it requires minimal manual intervention and offers easy operation. The FA segment, therefore, is expected to grow at a CAGR of 16 per cent over the next 5 years as against 9 per cent CAGR for SA machines. •Consequently, the share of FA machines in total washing machine sales is expected to reach 43 per cent in 2016-17 from 36 per cent in 2011-12.

Segmental volume and value mix

Sustained demand from semi urban areas to drive growth in the SA segment •The semi automatic segment is expected to register robust growth because of steady demand in semi urban areas where buyers are more price sensitive. •The high price differential between SA and FA machines will help boost sales in the former segment to 3.4 million units in 2016-17 from 2.1 million units in 2011-12. •Apart from price, FA machines require running tap water. •As a result, areas facing water shortage are likely to opt for SA machines. •In value terms, the share of the SA segment in overall sales is likely to dip by 7 percentage points to 39 per cent in 2016-17.

Demand Review: Air Conditioners

Healthy volume growth for room air conditioners over next 5 years Demand grew at a robust pace between 2006- 07 and 2011-12 •The room air conditioner (RAC) industry in India, comprising split ACs and window ACs, grew at a CAGR of 13 per cent from 2006-07 to reach 3 million units in 2011-12 . RAC demand grew at a healthy pace due to the relatively low penetration level and the increasing perception of the product as a necessity rather than a luxury in urban areas. •After growing at over 22 per cent between 2006-07 and 2007-08, RAC demand growth slowed down to 10 per cent y-o-y in 2008-09 due to weak consumer sentiments following the economic slowdown. •However, with an improvement in the economic scenario, demand picked up in •2009-10 and 2010-11 leading to a 20 per cent (CAGR) growth in volumes.

Healthy volume growth for room air conditioners over next 5 years Demand grew at a robust pace between 2006- 07 and 2011-12 •However, unfavourable weather conditions as well as weak consumer sentiments resulted in a sales decline during 2011-12. •Rising household incomes, growing number of nuclear families, increased value perception and low penetration levels are some factors driving the growth of the RAC industry in India

Cooler summers, early monsoons and weak consumer sentiments brought down sales in 2011-12 •RACs are a seasonal product and are highly dependent on summer sales. •Around 45 per cent of the annual sales for RACs happen during the April-June period. During the first quarter of 2011-12, summer was relatively cooler in most parts of India. •The rains arrived early, thus resulting in 15 per cent lower demand for RACs during the quarter. •Further, RAC prices increased following the depreciation of the rupee against the dollar and the increase in raw material costs. •Subsequently, high inflation and increasing interest rates led to higher cost of ownership, which affected demand.

Cooler summers, early monsoons and weak consumer sentiments brought down sales in 2011-12 •As a result, RAC sales were around 6 per cent lower (y-o-y) in 2011-12. •Assuming normal weather conditions and with the easing of inflationary pressures, we expect RAC sales to grow by over 9 per cent (y-o-y) in 2012-13 to 3.3 million units. The split AC segment is expected to grow at a faster pace of 13 per cent growth visa-vis the window AC segment, which will see lower growth of around 4-5 per cent. While the prices of key raw materials are likely to moderate or remain stable in 201213, the hike in excise duty in the Union Budget for 2012-13 and increase in other •operating costs are expected to lead to an increase in RACs prices.

Cooler summers, early monsoons and weak consumer sentiments brought down sales in 2011-12 •The price increase would however be 4-5 per cent as against over 7-8 per cent seen during the 2010-2012 period. •In value terms, the segment is expected to grow by 15 per cent y-o-y to Rs 7 7 b i l l i onin2012-13

Room air conditioner - Volume growth

Long-term demand to grow at a healthy pace •Sales are expected to pick up gradually (14 per cent CAGR) over the next 2 years, after declining in 2011-12. •Subsequently, between 2013-14 and 2016-17, we expect RAC demand to gather momentum and clock 18 per cent CAGR. Overall, Research expects RAC demand to grow at a healthy pace of 16 per cent to 6.4 million units over the next 5 years (2011-12 to 2016-17) encouraged by increasing income levels, low inflation, stable interest rates and relatively stable prices. •During this period, the split AC segment is expected to grow at a faster pace of 21 per cent CAGR as compared to 8 per cent CAGR for window AC segment. •The industry market size is likely to reach Rs 168 billion in 2016-17.

Long-term demand to grow at a healthy pace •Realisations are expected to rise at a CAGR of 3 per cent over the next 5 years due to the continuing shift in consumer preferences (for the higher value split AC segment) in addition to increase in input costs. •The following figure shows the industry growth over the next 5 years in value terms.

Room air conditioner - Value growth

Demand for split ACs to outpace window ACs •Over the next 5 years, split AC demand is expected to grow at a faster pace than window ACs. •Despite their price being 1.3 times higher than that of window ACs, consumers are increasingly preferring split ACs given their better aesthetics and lower noise levels. •Consequently, the share of split ACs in overall sales volume is likely to increase to 68 per cent by 2016-17 from 55 per cent in 2011-12. •In value terms, the share of the split AC segment is likely to reach 73 per cent in 201617 from 60 per cent in 2011-12.

Segmental volume and value mix

Segmental volume and value mix •However, price sensitive consumers in urban and semi urban areas are likely to drive demand for window ACs, which is expected to grow at a modest pace of 8-9 per cent over the next 5 years. Window AC sales are expected to reach 2 million units in 201617.

Costs and Profitability Analysis

164

• Profitability in the household appliances industry is determined by movements in raw material costs and the ability of the players to pass on cost escalations. • With the exception of LCD panels, input costs of most raw materials rose in 201112. However, due to intense competition, players were not be able to pass on the entire increase in costs to consumers. • Moreover, selling and marketing costs also increased during the year as lower demand forced manufacturers to offer more discounts. • As a result, despite a shift in consumer preference towards higher value products, operating margins in the washing machines and refrigerator segments are • estimated to have fallen by 40-50 basis points in 2011-12, whereas margins in the RAC segment are estimated to have fallen by 90 basis points. • Operating Margins in the CTV industry however remained stable during the year.

CTV margins to remain largely stable in 2012-13 •For Cathode Ray Tube (CRT includes Conventional and Flat CTVs) TVs, the colour picture tube (CPT) and glass constitute around 60 per cent of the total input cost. •In the case of panel TVs, LCD panels account for more than 75 per cent of the total input costs. •Other components such as plastics and electronic circuit constitute the remaining 2530 per cent of the input costs. •After declining in the last 2-3 years, CPT prices increased by around 2 per cent in 2011-12 and plastic prices rose by 21 per cent in 2011-12. •Other costs (labour, selling and marketing cost) also rose by around 4 per cent y-o-y.

CTV margins to remain largely stable in 2012-13 •However, CCTV and FCTV prices rose only by around 2 per cent during this period. As a result, the margins of CRT TV manufacturers are estimated to have contracted by •20 basis points to 4.3 per cent in 2011-12. In 2012-13, margins are expected to decline further by 10 basis points to 4.2 per cent.

CTV cost break up

CTV segment-wise profitability

CTV segment-wise profitability •LCD panel prices, on the other hand, went down by 13-15 per cent in 2011-12 and are expected to fall further by around 13 per cent in 2012-13. •However, manufacturers are unlikely to show improved profitability as they are likely to pass on the entire benefit to consumers given the prevailing competition in the industry. •Operating margins, as a result, are estimated to remain constant at 6.9 per cent in 2011-12 and 2012-13. •CRT TV margins are expected to decline by 20 basis points in 2011-12, whereas margins in the panel TV segment, accounting for 29 per cent of total sales, are expected to remain stable. •Given the shift in consumer preference towards the high-margin LCD TVs, the overall margins will expand by 10 basis points to 5.9 per cent.

Operating margins of refrigerator makers to increase by 40 basis points in 2012-13 •Raw material cost is a major component for refrigerators accounting for around 65 per cent of total operating cost. •Compressor condenser & evaporator and metal used for making cabinets and doors account for around 65 per cent of the total input cost in refrigerators. •Prices of raw materials like aluminium and steel increased by 5-8 per cent (y-o-y) in 2011-12, while copper prices rose by 10 per cent y-o-y. •Prices of plastic, another major raw material, increased steeply by around 21 per cent during the year. •Along with raw material costs, selling and marketing expenses are estimated to have increased with players forced to offer more discounts.

Operating margins of refrigerator makers to increase by 40 basis points in 2012-13 •Given intense competition levels, players would not be able to completely pass on the rise in input costs. •Operating margins of players are therefore estimated to decline by 50 basis points to 4.5 per cent in 2011-12.

Refrigerator cost breakup

Refrigerators segment-wise profitability

Refrigerators segment-wise profitability •In 2012-13, while other costs are expected to rise (includes selling and marketing, labour cost), prices of most of the raw materials (steel, copper, aluminium and plastic) are expected to come down by 1-3 per cent y-o-y. •This will result in a 40 basis points expansion in the margins of refrigerator manufacturers in 2012-13.

WM margins to increase marginally in 2012-13 •The electric motor, drum, body and transmission system are the main components of a washing machine. •These parts account for around 72 per cent of the total input costs. •Most of these components are made of steel and aluminium. Other components include plastic parts and electronics like printed circuit board (PCB). •After rising by 12-16 per cent in 2010-11, prices of aluminium and steel rose further by 5-8 per cent in 2011-12. •The price of plastic has also increased by 21 per cent following the rise in crude oil prices. •Consequently, the unit operating costs are likely to have risen by around 8-9 per cent (y-o-y) during the year.

WM margins to increase marginally in 2012-13 •Intense competition restricted washing machine markets from increasing their prices by more than 7.0-7.5 per cent y-o-y. •Operating margins are therefore estimated to have declined by 40 basis points to 3.9 per cent in 2011-12.

Washing Machine cost break up

Washing Machines segment-wise profitability

Washing Machines segment-wise profitability •In 2012-13, while other costs (selling and marketing, labour cost) are expected to rise, prices of most of the raw materials (steel, aluminium and plastic) are expected to decline by 1-3 per cent y-o-y. •This will result in a 30 basis points increase in the margins of washing machine manufacturers, to 4.2 per cent in 2012-13.

Operating margins of RAC manufacturers to go up by 50 basis points in 2012-13 •Major components of an AC, which account for more than 70 per cent of the total input cost, include the compressor, condenser, evaporator, metal and plastic parts. •As most of these components are made of copper, aluminium and steel, changes in metal prices affect their prices. •In 2011-12, copper prices rose by 10 per cent while prices of aluminium and steel increased by around 5-8 per cent. •Selling and marketing costs also increased with RAC players offering more discounts and increasing their advertising spends in the latter half of the year. •Unit operating cost, as a result, rose by 8-9 per cent y-o-y in 2011-12.

Operating margins of RAC manufacturers to go up by 50 basis points in 2012-13 •Although RAC prices rose by 7.0-7.5 per cent, players could not pass on the entire price increase due to the prevailing competition. as a result, the operating •margins of the industry are estimated to have declined to 4.9 per cent (y-o-y) in 201112 despite the continuing shift in segmental mix in favour of the high-margin split AC segment.

Room air conditioner cost breakup

Room air conditioners segment-wise profitability

Room air conditioners segment-wise profitability •In 2012-13, while other costs are expected to rise (includes selling and marketing, labour cost), prices of most of the raw materials (steel, aluminium, copper and plastic) are expected to come down by 1-3 per cent y-o-y. •This will result in a 50 basis points expansion in the margins of RAC manufacturers, to 5.4 per cent in 2012-13.

Critical Success Factors

CRITICAL SUCCESS FACTORS

• Advertising and Promotions • Distribution Network • Presence across Product Segments • Access to New Technologies • Operational Efficiencies

Players with a portfolio of strong brands have a strong edge over competitors.
ADVERTISING AND PROMOTIONS

•Continued and sustained advertising and promotional support is the key to creating strong brands. •A company’s competitive advantage on this parameter can be evaluated on two fronts: • Advertising support indicated by advertising spend as a proportion to revenue. • Advertising effectiveness indicated by its market share movement.

Selling expenses as % of sales very across companies

SELLING EXPENSES (ADVERTISING AND PROMOTIONAL ACTIVITIES) AS PROPORTION OF SALES
20 18 16 14 12 10 8 Mirc 6 4 2 0 Mirc Videocon Voltas LG Selling Costs as % of Sales LG WhirlPool Samsung

There is a strong correlation between spend on advertising and promotions and the market share.
SELLING EXPENSES AND IMPACT ON MARKET SHARE

•Some companies like Samsung and Whirlpool spend around 1520 per cent of their total revenue on selling costs (including advertising and promotional activities), while others like Onida, Videocon and Voltas spend onlyaround 4-7 per cent. •With the highest spend of around 18-20 per cent of revenue on selling costs, LG has been able to sustain its overall market leadership in household appliances sector over last 3-4 years despite increasing competition from new entrants. •In many segments, Samsung’s increase has been contributed to a large extent by their spend on advertising and promotions.

Distribution network in small towns and rural areas and the dealer productivity will be important in the future to increase market presence .
STRONG DISTRIBUTION NETWORK

•Establishing and managing a strong distribution network is another important factor for market expansion and servicing existing customers. •Household appliances demand is concentrated in urban centres, with only 33 per cent of the sales coming from rural India. •Most dealers have dealership in major cities. •But with demand from smaller cities on the rise, companies are taking steps to enter relatively under penetrated semi-urban or rural India. •Companies are trying to capture market share through increasing their dealer base in under penetrated rural markets. •Market leaders like LG and Samsung not only lead in terms of sheer number of dealerships but are also more efficient, as they generate more revenues per dealer as compared with others.

LG and Samsung are most diversified with presence across all Product categories .
PRESENCE ACROSS PRODUCT SEGMENTS (2008-09)

Products
LG CTV Refrigertors Washing machines A/Cs Others 35 16 6 16 27 25 18 7 12 38

Proportion of Company’s sales
Samsung Mirc 58 0 7 18 18 Whrilpool Sony 0 64 18 6 13 39 0 0 0 61 Philips 0 0 29 0 71

Diversification helps in synergies in expenditure and reduce dependency risks on one product category .
IMPORTANCE OF DIVERSIFICATION

Diversification helps companies in the following ways: • A diversified company is well placed to take advantage of synergies of scale for expenditures like advertising, distribution and other marketing costs. • Reduced exposure to a particular product segment makes the company more stable and less vulnerable to the downtrend in any particular segment. For example, LG and Samsung are more diversified than companies like Onida. Realising its overdependence on the CTV segment, Onida has been increasingly taking efforts to diversify its portfolio by aggressively entering into other segments like air conditioners.

Access to new technologies helps in bringing new launches fast at reduced costs .
ACCESS TO NEW TECHNOLOGIES

•Regular product launches with high quality and innovative technology at competitive prices is one of the key factors that help a company gain an edge over its competitors. •With the product life cycle shrinking, players have to introduce new products at frequent intervals to survive in the competitive market environment. •Most multinationals such as LG, Samsung and Whirlpool are better placed as compared with domestic companies as they receive technological and financial support from their parent companies.

LG and Samsung’s competitive advantage also come from their operational efficiency due to high capacity utilization .
OPERATIONAL EFFICIENCIES

•Operational efficiency determines the cost of the product. •The company’s operational efficiency can be assessed by looking at its capacity utilisations and supply chain efficiency (lower cost, minimal component inventory or shortages). •Capacity utilisation for the household appliance industry has been at sub-optimal levels. Many players had set up capacities in 1990s in anticipation of high demand growth, which did not materialize. •Operating rates vary across players; while Korean players like LG and Samsung operate at 70-80 per cent, others like Onida operate at 35-40 per cent..

Impact Analysis

196

Stronger volume growth forecast in 2012-13 •The household appliances industry is estimated to grow by 14 per cent in 2011-12. •The growth will largely be supported by increase in realisations, as players have partially passed on the higher raw material prices. •Volume growth will be only 4 per cent as against 7 per cent in 2010-11, largely due to weak consumer sentiment, given the slow economic growth, high inflation, rising interest rates and rise in the prices of most appliances. •With inflationary pressures expected to cool off and interest rates likely to decline, consumer sentiment is expected to improve. •Volume growth is expected to double to 8-9 per cent in 2012-13. •Along with healthy volume growth, realisations would also increase due to a shift in favour of high-value products like LCD televisions (TVs), split air-conditioners (ACs) and fully automatic washing machines.

Stronger volume growth forecast in 2012-13 •The different segments in the industry are expected to perform as follows in 2012-13: •TV sales are likely to rise by 6-7 per cent in volume terms, driven by robust demand growth in the LCD segment. •Refrigerator volumes are estimated to grow at 10 per cent with healthy demand in frost free and direct cool segments. •Washing machine segment is expected to register volume growth of 10-12 per cent. •ACs (a highly seasonal product), which recorded a decline in demand in 2011-12 due to a relatively cooler summer, are expected to log a volume growth of 10-11 per cent, assuming favourable weather conditions.

Stronger volume growth forecast in 2012-13 •Prices of major raw materials used in household appliances are expected to come down in 2012-13. As a result, operating •margins of the players are expected to improve by 40-50 basis points. •In the long term, demand growth will be largely driven by favourable demographics, rising disposable incomes, shift in consumer preference, increasing penetration, especially in rural areas, and competitive prices.

Household appliance: tariffs

Impact on companies

Impact on companies A. Complete exemption of customs duty on LCD/LED panels (from 5 per cent in the previous year) will lower panel TV prices, thereby driving demand. B. Increase in excise duty by 2 percentage points to result in a price rise, as it will be passed on to the consumer. This will impact demand. C. While prices would rise on account of increase in excise duty, the change in income tax slabs would offset the impact on consumers. Individuals with taxable income higher than Rs 0.8 million per annum would save Rs 22,000 due to the change in income tax slabs.

Player Profiles : IFB

203

IFB

IFB

IFB

Company Background •IFB Industries Ltd originally known as Indian Fine Blanks Limited started its operations in India in 1974 in collaboration with Heinrich Schmidt AG, Switzerland. •IFB Industries has its business categorized into fine blanking and home appliances. IFB Home Appliances deals into washing machines, microwaves, dishwashers, kitchen appliances, commercial laundry and drying machines. •The engineering divisions of the company are located in Kolkata and Bangalore. •The Bangalore unit apart from Fine Blanked components manufactures motors for white goods as well as automotive segments.

Product Profile •Washing Machines: Earlier the company was present only in the fully automatic front loading washing machine category. •Its fully automatic front loading model is now available in capacities ranging from 59 kgs. •It has also launched top loaders in Indian market in the capacity of 6-7 kgs. •Other Appliances: Besides washing machine, the company also offers a comprehensive range of microwave ovens, dryers and dish washers.

Player Profiles : LG

209

LG Electronics

LG Electronics

LG Electronics

Company Background •LG India, a wholly owned subsidiary of LG Electronics, South Korea, began its operations in India by trading goods imported from its parent company. •In 1998, the company set up a manufacturing facility at Greater Noida (Uttar Pradesh) where it manufactures CTVs, washing machines, refrigerators and ACs. •In 2004, the company set up another facility at Pune, Maharashtra where it manufactures CTVs and refrigerators,air conditioners, mobile phones and monitors.

Product Profile Colour Televisions: LG India has a wide variety of products across all categories such as flat TVs, ultra slim TVs, LCDs and Plasma TVs. Refrigerator:The Company has about 72 models across segments including direct cool, frost free and side by side refrigerators. Air-conditioner: Within the room air-conditioner segment, the company offers ACs in categories such as inverters, floor standing, split, multi-split, window ACs, cassette, ducted ACs. Washing Machine: The company is present in all the categories such as semiautomatic, front loader and top loader.

Player Profiles : Mirc

215

Mirc Electronics

Mirc Electronics

Mirc Electronics

Company Background •The group's principal activities include designing, assembling, branding and marketing consumer durables and components. •Indian promoters hold a significant stake of around 55 per cent in company's equity. •It markets the products under the brand names of Onida and IGO. •The company has a manufacturing facility at Kudus Wada (Maharashtra), Noida (Uttar Pradesh) and Rourkee (Uttarakhand). Mirc exports its products to Gulf, Nepal and Sri Lanka.

Product Profile •Mirc is now present across categories. •Its product portfolio includes DVD players, air-conditioners, microwave ovens, home theatre systems, DVD players & recorders, compact disc players, video cassette recorders, video cassettes and washing machines. •Onida has also entered various multimedia presentation products including multimedia projectors, Plasma Display Panels and visual presenters.

Player Profile: Samsung

221

Samsung

Samsung

Samsung

Company Background •Samsung India Electronics Private Limited (SIEL) is the Indian subsidiary of Samsung Electronics Corporation (SEC) headquartered in Seoul, Korea. •Its Indian operations are part of the hub of Samsung's South West Asia Regional Operations and it also oversees the company's business in Nepal, Bangladesh, Maldives and Bhutan. SIEL commenced operations in India in December, 1995. •Initially, a player only in the Colour Televisions segment, it later diversified into colour monitors (Commenced: 1999) and refrigerators (Commenced: 2003). •Samsung India has a presence in the following areas of business: Consumer Electronics, Audio Visual Business, Home Appliances Business,Mobile Handset and Information Technology Business.

Company Background •To differentiate its products from competition, Samsung follows a deliberate strategy of bringing in the world's best design and technologies to India from its parent. •It times the launch its products in India around the same time as that of the global launch of its products.

Product Profile •Colour Television:Samsung has a wide variety of products across all categories including flat , ultraslim TVs, LCDs , LEDs and Plasma. •Refrigerators:Samsung has its presence in French door, frost-free, direct cool, bottom freezer and side by side segments. •It has around 2 models in French door (529L-579L),29 models in frost-free (190L570L) ,9 models in direct-cool (190L-230L), 2 models in bottom freezer (358L- 580L) and around 11 models (549L- 801L) in the side by side segment. •Air Conditioners:Samsung has around 58 models in split-ACs and 15 models in window ac segment (in the 1 tonne to 2 tonne capacity range) •Washing Machine :Samsung is present in semi- automatic segment with around 9 models and in fully-automatic segment with around 24 models.

Player Profile: Videocon

228

Videocon Industries Ltd

Videocon Industries Ltd

Videocon Industries Ltd

Company Background •Videocon Industries Ltd, the flagship company of the Videocon Group, was incorporated in 1985 by NM Dhoot. •It started with manufacturing TVs and audio appliances primarily at its Chittegaon plant in Aurangabad, Maharashtra. •Further, the company has assembly operations at around 17 manufacturing locations across the country. •The company's glass panels and glass funnels (collectively known as glass shells) facility is in Bharuch (Gujarat) having an installed capacity of 4.5 million units and 7.5 million units, respectively. Currently, the company operates in 4 businesses Consumer electronics and home appliances, oil and gas, power business and telecommunication.

Product Profile •Products like Colour Televisions, Washing Machines, Air Conditioners, Refrigerators, Microwave Ovens and many other home appliances fall under its Consumer Electronics, Home Appliances & Compressor division. •The company's in-house compressor manufacturing technology in Bangalore (Karnataka) supports refrigerator manufacturing. •The display devices and components division manufactures Colour Picture Tubes such as slim CPT, extra slim CPT and High Definition 16:9 format CPT. •Videocon is also involved in oil and gas exploration activities in its oil fields in India, Australia and Oman.

Player Profile: Voltas

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Voltas Ltd.

Voltas Ltd.

Company Background •Voltas Ltd was promoted by Tata Sons Pvt Ltd in collaboration with Volkart Brothers in 1954. •It is mainly into air-conditioning and engineering services. •Its operations are organised into four segments viz., electro-mechanical projects and services, engineering products and services, unitary cooling products and others. •Its factories are located at Thane (Maharashtra), Dadra and Pantnagar (Uttaranchal). Its overseas offices are located in London, Abu Dhabi (UAE), Dubai, Saudi Arabia, Kingdom of Bahrain, Singapore and Qatar. •For its turnkey engineering projects the company has technical collaborations with international companies such as Hitachi (Japan), Standard Refrigeration (USA), Dunham Bush (USA), Ruks engineering (Canada), MIDEA (China) etc. •It has seven subsidiaries and two joint ventures.

Product Profile Air Conditioners: Voltas is present in the windows and split air conditioners segments. It offers window and split ACs between 0.75 and 2.0 ton capacities. It is the first to launch sub-1.0 ton ACs. Voltas launched Pristline, Panache, Cassette and Slimline brand of ACs. Commercial Refrigerator:Products include Deep freezers, visi coolers and chest coolers.

Player Profile: Whirlpool

239

Whirlpool of India

Whirlpool of India

Whirlpool of India

Company Background •Whirlpool entered India in the late 1980s under a joint venture with TVS group and established Whirlpool washing machine manufacturing facility in Pondicherry. •It acquired Kelvinator in 1995 and thereby made an entry into the refrigerator market. In 1996, Kelvinator and TVS acquisitions were merged to form Whirlpool of India. •The company's product portfolio includes washing machines, refrigerator, microwave ovens and air conditioners. •The company has manufacturing facilities in Faridabad (Haryana), Ranjangaon (Maharashtra), Thirubhavanai (Pondicherry).

Product Profile •Refrigerators: Whirlpool refrigerator has a wide range of models, 7 in direct cool, 12 in frost control and 68 in the frost free segment. •The company's direct cool segment is marketed under the brand names Genius (180L to 230L) and Masterpiece (180L). •Frost control refrigerators are marketed under the brand name Fusion (180L-310L) and frost- free segment is marketed under the brand names Mastermind (220L-280L), Professional (310L-450L) and Protton (240-480L).

Product Profile •Air Conditioners: Whirlpool is present in the split air conditioner segment through its Mastermind Aviator and Mastermind Chrome brand and in the windows air conditioner segment through its Mastermind Deluxe and Mastermind Royale brand. It offers windows AC and spilt AC models between 0.8 and 2 tonne capacities. •Washing Machines: The Company has a presence across the complete range of semiautomatic and fully automatic (front and top load) models.