Dedicated To Mumbai
Home > Business > Challenges, Opportunities for India’s Consumer Durables

Challenges, Opportunities for India’s Consumer Durables

Tuesday, August 02, 2011
By Manik K. Malakar

The consumer durables sector in India is one that will be passing through some very interesting times. On the one hand there is substantial scope for expansion as the favourable demographics of India are a positive for the sector.

On the other hand there are factors like increasingly expensive raw materials as well as competition that will have a detrimental effect on the sector.

‘We believe the Indian consumer industry will exhibit robust 15% sales growth in 2011 and likely to maintain double digit sales growth over medium term,’ was the view of a report on the Consumer Durables Industry in India released by GEPL Capital. The lower penetration of the rural markets will be one of the drivers for growth in the CD sector. In the urban market it will be new innovations as well as replacement demand.

But there are issues that the sector will have to face and the rising interest rate regimen is one of the first. “Consumer durables are slightly interest rate sensitive,” said Dr. V.K. Vijayakumar, Investment Strategist with Geojit BNP Paribas. So, the current high interest rate scenario means that some sluggishness in demand can be expected.

“But, rising incomes have been pushing up the demand for consumer durables in India and, therefore, I will not be surprised, if demand sustains, though at a slightly reduced rate,” Vijayakumar continued.

Another factor that is going to affect the sector is competition. ‘There is intense competition among players leading to higher ad spends and lesser pricing power, thereby lowering margins,’ the GEPL note continued.

“Competition in this segment is really hot now,” said Vijayakumar. While market leaders in the various categories are emerging, the other companies are finding that it is a tough going.

And the raw material scenario for the sector too is going to be problematic for the sector. Raw materials, as inputs vary as much as there is variety in consumer durables. Some of the main inputs are natural rubber used in tyres, and metals & polymers, which constitute the body and/or the electrical/electronic components.

With RBI hiking rates on 26th July, the eleventh time it did so since March 2010, and with no end in sight for the tightening measures, dispensable income with the consumer would reduce to a trickle, or at best a change in spending patterns should follow. “This would mean that the ability of companies to pass on the higher raw material prices to consumers would be considerably reduced,” said Anand James, Chief Analyst, Geojit Comtrade.

“Margins are shrunken due to competition and cost pressures,” said Jagannadham Thunuguntla, the Head Research at SMC Global Securities. Even technologically there are trends that are coming out of the sector. And these new technologies are some that are defining the sector.

“In categories like split air conditioners, washing machines etc. MNCs are the market leaders. Most of them have their R&D facilities in their home countries. Therefore, naturally, they will go for technology imports to beat obsolescence,” said Vijayakumar.

In this industry, profitability is mainly a function of business volume. The industry has transformed from a ‘high margin low volume’ business to a ‘low margin high volume’ business, Vijayakumar explained.

With continuous changes in the psychographic and demographic profile of the consumer, the raw materials as well as the products are required to undergo persistent changes to meet not only the varying demand, but also to meet the packaging and transportation needs, to improve the time and place utility of the product, as well as in product differentiation. “This would mean that consumer durable sector would continue to rely heavily on advancements in technology,” said James of Geojit Comtrade.

So from the point of view of the investors is this a good sector to invest? “For conservative investors, it does make sense,” said SMC’s Thunuguntla.

Since the industry is likely to do well for many more years to come, investing in stocks in the industry, when the prices correct would be a good idea,” said Vijayakumar. He cites India’s domestic consumption story for that. “A catch here is that many good companies, like the Korean majors, are not listed,” Geojit BNP Paribas’ Vijayakumar concluded.

Facebook
Tweet
COMMENTS
No Comments Posted
POST YOUR COMMENTS
Name:  
Email:    
Comments:
 
Since 2009, I came to know her and started meetin
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Astrology
Select Sun sign:
 
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)You are going to have unexpected financial gains and your good judgment and ability to work against all odds will prove to be very successful. Your services will be in great demand and you will be given an important post or designation. There could be some changes in a travel plan.
- Advertising -
You've enjoyed your X'mas and had a blast with al
Modern age can be referred to as the age of commu
A quartet of 19-year-old youngsters are spreading
Read More