LG Electronics India Pvt. Ltd doesn’t expect rising interest rates to hamper sales growth, Soon Kwon, managing director of the local unit of the South Korean company, said in an interview.
Since March 2010, the Reserve Bank of India (RBI) has raised interest rates 11 times in a bid to rein in inflation. But the policy, which has seen the key interest rate rise 4.75 percentage points to 8% over 16 months, is yet to affect demand in the country, he said on the sidelines of a briefing on Thursday.
The company entered India in 1997 to log a revenue of Rs 125 crore, which has since grown to Rs 16,000 crore in 2010. It is eyeing 25% sales growth this year, partly spurred by rural and semi-urban demand for refrigerators, washing machines, televisions, cellphones and computers, he said. Edited excerpts:
While developed markets are languishing, India is facing a rising interest rate scenario due to inflation. Does this change your outlook?
We see demand still increasing exponentially in India. Premium product sales may not be hit by higher interest rates, but mid-price products could see an impact from this economic scenario. We don’t know yet whether the Indian economy is going to slow down. We still expect our India sales to grow from Rs 16,000 crore in 2010 to Rs 20,000 crore in 2011.
So your outlook for marketing spends won’t change?
We will spend Rs 700 crore as planned in 2011 towards marketing expenses for our products in India.
You raised prices of your products earlier this year under pressure from rising input costs. Are there any more increases planned?
No. We don’t plan to raise prices again this year even though our sales weren’t hit by the previous increase.
Are there concerns about rising food prices eating into your prospective customers’ wallets that will make them delay purchases?
We don’t see any serious impact from rising prices of agricultural and other commodities. But we have to be ready to deal with any eventuality. Cutting prices may help us maintain market share but it will end up hurting profits. So it is a complicated decision.
Will the contribution of rural sales to your kitty increase?
The number of our rural outlets is going to rise and rural and semi-urban regions’ contribution to our total sales will grow to 35% from the current 30% in another two-three years. LG’s rural expansion will outpace the company’s urban growth.
Which areas of your business are key sales drivers?
As an estimate, about 50% (of sales come) from home entertainment, 30% from home appliances and about 20% from air conditioning.
Are there plans to set up additional production facilities, besides the ones you have in Maharashtra and Uttar Pradesh?
We plan to spend Rs 800 crore upgrading our existing facilities and adding new tools to enable manufacturing of new models in the Pune and Greater Noida facilities. So far, there has been no need felt to build another factory in the southern or eastern part of India.
Which product categories are going to catalyze LG India’s growth?
Besides the existing categories, we also want to focus on the information technology segment through computers and printers that will partially help in boosting India’s contribution to LG’s global sales from the current 6% to 12% by 2015.