Mumbai: Despite persistent signs of an economic slowdown, Indian consumer durable companies say they have been able to buck the trend—so far.
The Index of Industrial Production (IIP) data indicating a slowdown of 1.7% in the consumer durable sector for April-November 2007 period, an analysis of nine listed companies in the four quarters of calendar year 2007 compared with the previous year shows that an uptick in demand at the high end and better cost management have helped companies in the sector boost sales as well as profitability.
Mint looked at Videocon Appliances Ltd, Whirlpool of India Ltd, Voltas Ltd, Mirc Electronics Ltd, BPL Ltd, Blue Star Ltd, Hitachi Home and Life Solutions (India) Ltd, Lloyd Electric and Engineering Ltd and Sharp India Ltd for the analysis. Adjusted profit after tax (PAT) of the nine companies cumulatively grew 55% in 2007 from 2006 as sales rose 19%.
“Last year, high-end products saw a healthy growth in demand. Since such products offer better margins in comparison with mass products, the trend helped companies register better profits,” said Venugopal Nandlal Dhoot, chairman and managing director, Videocon.
The companies registered Rs995 crore in PAT in 2007 by selling goods worth Rs13,277 crore. The figures in 2006 stood at Rs641 crore and Rs11,154 crore, respectively.
The size of the consumer durables sector in India, as estimated by industry lobby the Federation of Indian Chambers of Commerce and Industry, is around Rs35,000 crore. Korean chaebols Samsung India Electronics Ltd and LG Electronics India Pvt. Ltd account for almost 40% of that.
In some cases, the growth in profits was spectacular. Voltas, for instance, saw its profits zoom from Rs2.46 crore to Rs48.41 crore.
Growing business: A consumer goods showroom in New Delhi. While the Index of Industrial Production pointed to a downturn, a study of nine listed companies’ results suggests that they bucked the trend. (Photo: Madhu Kapparath/ Mint)
“We have changed our product mix seeing the spurt in demand at the top end of the market. Sales of premium product were very high in 2007,” said Pradeep Bakshi, vice-president, sales and marketing, Voltas, adding the company saw a 60% increase in the sales of split air conditioners (ACs), a higher margin product, compared with window ACs, which grew 25%.
Similarly, Whirlpool, which incurred a loss of Rs115 crore in 2006, bounced back with a PAT of Rs38.9 crore in 2007. “We not only grew faster than the industry in most categories we operate in but also improved our profitability,” said Shantanu Das Gupta, vice-president, marketing. The company says it launched more premium products with higher margins in most categories including refrigerators, front-load washing machines, microwaves and split ACs.
“We intend to consolidate our presence in categories such as ACs and cooking appliances. All this will be done through major consumer oriented new product launches in our main as well as emerging categories along with strong brand building measures,” Das Gupta added. He said this year the company will be entering super-premium product segments such as hobs and ovens that are built into designer or modular kitchens. “With these moves, we aim to improve our profitability further this year.”
Videocon Appliances, a part of Videocon Industries Ltd, generated the highest profit of Rs821 crore among its peer group. It was a 35% increase over the previous year, despite sales rising by a mere 17% to Rs7,543.8 crore. “Besides consumer durables, we also make glass picture tubes and it is a very high-margin and profitable business. Also, our sales grew more than 50% in the plasma TV category, which is again a high-end, high-margin category. All this helped boost business,” said Dhoot.
Analysts said demand is back in the market after a period of lull few years ago. The nine firms had earned Rs74 crore in PAT on revenues of Rs7,458.7 crore in 2005. Also, most companies were in red.
“We found a growing preference among consumers to go in for products that stand for a better life style. Seeing the trend, we are focusing now on product innovation. We are, in fact, launching a very advanced version of LCD TV next week,” said Gulu Mirchandani, chairman and MD, Mirc Electronics, the company behind the Onida brand.
Analysts said besides product innovation, using technology to rein in costs as well as lower product prices, aggressive marketing and expansion in sales and distribution network helped the companies.
“LCD TV prices dropped by about 20% in 2007 but this helped increase the volumes since more consumers were able to afford such products. Input costs such as steel and copper went up, which led to an increase in the prices of products such as washing machines and refrigerators, yet thanks to a revival in consumer demand, these segments also saw good growth,” said Suresh Khanna, secretary general, Consumer Electronics and Appliances Manufacturers Association, an industry body.
“Normally, the consumer durable industry has tightly controlled margins. But now, consumers are buying high-end products, which obviously gives better margins...Also, the market is growing faster and the economies of scale have started to kick in,” said Hemant Kalbag, principal, consumer industries and retail practice, AT Kearney Ltd.