Description
The Consumer Durables industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, airconditioners and washing machines. Instruments such as cellphones and kitchen appliances like microwave ovens are also included in this category.
Consumer Durables
MARKET & OPPORTUNITIES
CONTENTS
Indian Consumer Durables Industry 2
Conclusion 8
Profles of Key Players 9
A report by KPMG for IBEF
Consumer Durables
MARKET & OPPORTUNITIES
2 MARKET & OPPORTUNITIES
Indian Consumer Durables Industry
The Consumer Durables industry consists of durable
goods and appliances for domestic use such as televisions,
refrigerators, airconditioners and washing machines.
Instruments such as cellphones and kitchen appliances like
microwave ovens are also included in this category. The
sector has been witnessing signifcant growth in recent
years, helped by several drivers such as the emerging retail
boom, real estate and housing demand, greater disposable
income and an overall increase in the level of afuence
of a signifcant section of the population. The industry is
represented by major international and local players such
as BPL, Videocon, Voltas, Blue Star, MIRC Electronics, Titan,
Whirlpool, etc.
The consumer durables industry can be broadly
classifed into two segments: Consumer Electronics and
Consumer Appliances. Consumer Appliances can be further
categorised into Brown Goods and White Goods. The key
product lines under each segment are as follows.
INDUSTRY SIZE, GROWTH, TRENDS
The consumer durables market in India was estimated to
be around US$ 4.5 billion in 2006-07. More than 7 million
units of consumer durable appliances have been sold in
the year 2006-07 with colour televisions (CTV) forming the
bulk of the sales with 30 per cent share of volumes. CTV,
refrigerators and Air-conditioners together constitute more
than 60 per cent of the sales in terms of the number of
units sold.
In the refrigerators market, the frost-free category has
grown by 8.3 per cent while direct cool segment has grown
by 9 per cent. Companies like LG, Whirlpool and Samsung
have registered double-digit growth in the direct cool
refrigerator market.
In the case of washing machines, the semi-automatic
category with a higher base and fully-automatic categories
have grown by 4 per cent to 526,000 units and by 8 per cent
to 229,000 units, respectively.
In the air-conditioners segment, the sales of window
ACs have grown by 32 per cent and that of split ACs
by 97 per cent.
Since the penetration in the urban areas for these
Consumer Durables
White Goods Kitchen Applicances/Brown Goods Consumer Electronics
• Refrigerators
• Washing Machines
• Air-conditioners
• Speakers and Audio Equipments
• Mixers
• Grinders
• Microwave Ovens
• Iron
• Electric Fans
• Cooking Range
• Chimneys
• Mobile Phones
• Televisions
• MP3 Players
• DVD Players
• VCD Players
Source: Cygnus Quarterly Report, Aug 2007, Edelweiss Report on Industrial Production
Key Consumer Durables - Share by Volume
Colour Television sets (CTVs) 30%
Refrigerators 18%
Air-conditioners 13%
Washing Machines 5%
Others 34%
3 CONSUMER DURABLES
products is already quite high, the markets for both CTVs
and refrigerators are shifting to the semi-urban and rural
areas.
The growth across product categories in diferent segments
is assessed in the following sections.
Consumer Electronics
The CTV production was 15.10 million units in 2006-07
and is expected to grow by at least 25 per cent. At the
disaggregated level, conventional CTV volumes have
been falling while fat TVs have grown strongly. Market
sources indicate that most CTV majors have phased out
conventional TVs and have been instead focusing more
on fat TVs. The fat segment of CTVs now account for over
60 per cent of the total domestic TV production and is likely
to be around 65 per cent in 2007-08.
High-end products such as liquid crystal display (LCD)
and plasma display CTV grew by 400 per cent and 150 per
cent respectively in 2006–07 following a sharp decline
in prices of these products and this trend is expected to
continue.
The audio/video player market has seen signifcant
growth rates in the domestic market as prices have
dropped. This trend is expected to continue through 2007-
08, as competition is likely to intensify to scale and capture
the mass market.
Mobile Phones – The New Opportunity
Mobile phone production in India is expected to grow at
a Compound Annual Growth Rate (CAGR) of 28.3 per cent
from 31 million units in 2006 to 107 million units in 2011.
Production of mobile phones is expected to be a US$
13.6 billion industry by 2011. The current US$ 4.9 billion
industry revenue is growing at a CAGR of 26.6 per cent. The
growth of mobile telephony market is highest in India with
6 to 7 million subscribers being added on a monthly basis
compared to the US, which adds 2 million subscribers and
China, which adds about 5 million subscribers.
India is also emerging as a global base for handsets as
key global players. India produced nearly 31 million mobile
phones in 2006 worth about US$ 5 billion. This segment
made the largest contribution to overall electronics
production revenue and the total available market for
semiconductors. For 2007, it is projected that the handset
production will increase by 68 per cent in volume to about
51 million units and 65 per cent in value terms. Starting
on an already strong base, over six million users are being
added every month and are building a large local market
for mobile manufacturers.
Low mobile penetration and favourable government
policies are driving global mobile phone manufacturers
to set up manufacturing facilities in India. Nokia started
its manufacturing unit in Chennai in January 2006 and
produced about 25 million handsets in the frst year of its
operation. India has now become the second largest market
for Nokia phones in the world. Nokia is also exporting
mobiles from its Indian facilities to Sri Lanka. Motorola
and Electronics Manufacturing Service vendors (EMS) like
Foxconn and Flextronics have also set up plants in India.
According to a study by Gartner, though the world’s top
fve handset makers will retain a major share of production
volume, local manufacturers can be expected to capture up
to a ffth of India’s overall mobile phone production volume
by the end of 2011. Growing demand for low-cost mobile
phones and the need for EMS vendors to reduce their
revenue exposure to Nokia, Motorola and Sony Ericsson,
for whom they are now manufacturing in India, are the
key factors expected to contribute to this trend. Most of
the components are imported today. Development of local
component manufacturing industry will be essential for
continuous growth of total handset manufacturing. Given
the price-sensitivity of the Indian consumer, access to low-
cost, feature-rich and local-specifc chip designs, as well as
a strong distribution network, remain key considerations in
this market. Key stakeholders in the mobile phone industry
value chain provide these, and local manufacturers could
be expected to look to form alliances and partnerships
White Goods
Increased consumer demand is expected to boost the
white goods segment to achieve production levels of
US$ 5.09 billion by the end of 2007-08 against US$ 4.54
billion in 2006-07, with a growth rate of 12.5 per cent.
Air-Conditioners
Growth in the white goods segment was largely driven
by the Air-conditioner (AC) segment. Within this, split ACs
have been the main growth drivers, recording a growth
of over 90 per cent in 2006. Growth, albeit at a slower rate
MARKET & OPPORTUNITIES 4
of 32 per cent, has also been experienced in the segment
of window ACs. The window AC segment is slightly less
organised as compared to split AC segment. The market for
air-conditioners is divided quite uniformly across customer
segments, with about 45 per cent share for private sector
corporates, 20 per cent for domestic use, 15 per cent each
for public sector companies and government use and
5 per cent for hospitals.
Washing Machines
The sales of washing machines has grown from about
780,000 units to 1,948,000 units during the period, fscal
year 1999 to 2007, registering a near 12.2 per cent annual
growth rate.
The washing machine market may be segmented
into semi-automatic and fully automatic machines. Semi-
automatic washing machines enjoy a dominant share of
85 per cent. Fully automatic washing machines have been
gaining share as a consequence of product improvement,
competitive pricing and resultant convenience. However,
semi-automatic machines will continue to play a major role
in the Indian market for quite sometime. Fully automatic
washing machines have been the growing at 44.5 per cent
and semi-automatic segment, at about 18 per cent.
The entry of MNCs has widened the range to more than
10 brands with a proliferation of models, while ensuring
technology upgradation. A visible impact of this churn has
been the exit of a few established players from the market.
Refrigerators
Refrigerators are one of the most sought after appliances
in Indian middle class homes. The refrigerator market has
two segments: Direct Cool and the relatively new Frost-Free
type. The market for refrigerators in 2006-07 was about
6.5 million units. The growth of refrigerator segment is
projected to be between 18 to 22 per cent over the next
5 years.
A critical success factor for the refrigerator market,
given its widespread use, is deeper reach into the market
and increased penetration. Recently, the market is getting
reinforced by the replacement segment as well.
Vacuum Cleaners
Vacuum Cleaners are an emerging segment in the Indian
market, still at a nascent stage. The drivers for demand have
been the improvement in life style and higher aspirations of
urban middle class and the top income brackets. While the
market has been growing, this segment is not expected to
reach signifcant volumes soon.
Part of this could be attributed to the lifestyle
compatibility of Indian customers with the product. In
the large majority of Indian houses, for instance, foors
are not carpeted and the product will have to meet
dual requirements of sweeping and mopping. Another
impediment to the adoption of vacuum cleaners has been
the availability of cheap domestic help in most cities.
Market Segment, ACs India , 2006
n Windows n Split
unorganised
Organised
30 40 90 60 50 10 70 80 20
per cent
Market share (Segmentation),ACs India, 2006
Pvt Sector 25%
Domestic 20%
Corporate 20%
Public Sector 15%
Government 15%
Hospitals 5%
Washing Machines (Sales in Units)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Source: CMIE
2002-03 2003-04 2004-05 2005-06 2006-07
Units
5 CONSUMER DURABLES
Domestic Electrical Appliances
Brown goods or domestic kitchen appliances are indicators
of the changing consumer scenario in post-liberalisation
economic environment. The major products constituting
the brown goods market are mixers, grinders, irons,
microwave-ovens, rice cookers, water heaters or geysers,
electric fans and exhausts.
The branded brown goods market has expanded at a
signifcant pace and is expected to retain the momentum
into the future as well. The market has been transformed
by the entry of over a dozen new brands, moreover
competition has intensifed. While focus on price
competency remains a key priority, players have also started
focusing on other product features such as safety and total
cost of ownership of the device.
Goods, like the rice cooker have been continuously
growing in a slow and steady manner over a signifcant
period of time, while microwave ovens have grown
exponentially after the initial period of customisation to
local requirements.
The electrical iron market can be divided into two
segments: heavy and light-weight. The market is also
segmented into two sub-segments: steam and non-steam
irons.
India being a tropical country, electric fans are an
essential utility for more than six months of the year in most
parts of the country. The present market size is estimated
at around 11.6 million pieces. The market is divided among
ceiling, pedestal, wall and table fans. Industrial and exhaust
fans are another important segment. The major players
include Orient Fan, Crompton Greaves, Jay Engineering,
Bajaj Electricals, Polar, Khaitan and Alsthom.
The electrical appliances industry, which had been
focused on the urban market, is now reaching out to
semi-urban and rural markets as well, because of the shift
in living style of the population, increasing electrification
of villages and relatively higher purchasing power of
consumers. As the market penetrates into the core
middle class segment in both urban and rural areas, it
is expected to expand phenomenally, offering large
volumes to the industry.
Trends Favoring the Growth of the Consumer
Durables Industry
The key trends that impact the Indian Consumer Durables
Industry today are refected in the diagram and discussed
separately in the following sections.
Increasing Share of Organised Retail
The urban and rural markets in India are growing at an
annual rate of 7 to 10 per cent and 25 per cent respectively.
One of the key enablers of this growth has been the
increasing penetration of organised retail. While there are
established distribution networks in both rural and urban
India, the presence of well-known brands and organised
sector is increasing.
At present around 96 per cent of the more than 5 million
retail premises of all types in India are smaller than 50 sq mtrs.
This situation is, however, transforming. Shopping malls are
becoming increasingly common in Indian cities, and based
on plans announced by key developers, a proliferation of
new malls is expected over the next three years. Although
many of the new malls would be much smaller than their
western counterparts, Indian consumers will have a far
larger number of attractive, comfortable, brand-conscious
outlets in which to shop. As a result, the organised retail
industry is expected to cover a market share of 15 to 18 per
cent by the end of 2010, from just 3 per cent at present.
This will have a positive impact on the consumer
durables industry, as organised retailing would not only
streamline the supply chain, but also facilitate increased
demand, especially for high-end and branded products
Income growth
and availability of
financing
Growth of
organised
retail
Indian Consumer
Durables Industry
Falling prices
increasing
affordability
Increased
competition due
to entry of large
players
Apprediation
of the Rupee
MARKET & OPPORTUNITIES 6
Narrowed Price Gap and Increased Afordability
of Products
Advanced technology and increasing competition is
narrowing the price gap between products in this sector,
which has driven demand and enabled high growth.
Products that were once beyond the reach of the middle
class Indian are now afordable to many. Growth in
demand for products, once considered luxuries, such as
air-conditioners, washing machines and high end CTVs, is a
refection of this phenomenon.
Entry of Large Players Increasing Competition
With potential heavyweight retail stores like Croma,
E Zone and Reliance Digital, the high-end segment has been
exposed to a new form of purchase, allowing the consumer
to feel/experience the product in a suitable ambience
(signifcant in decision-making). Part of the growth
momentum in high-end segments of consumer electronics
could be attributed to the competitive evolution of
organised retail, stimulating the demand through exposure
to high end shopping experiences.
Rupee Appreciation
Raw material cost constitutes more than 75 per cent of
expenditure incurred by consumer durable manufacturers
in India. The rapid appreciation of rupee vis-à-vis the US
dollar in 2007 is expected to ease raw materials costs for
Indian manufacturers and beneft those addressing the
domestic market.
Income Growth and Structural Changes
Apart from steady growth in income of consumers,
consumer fnancing has become a major driver in the
consumer durables industry. In the case of more expensive
consumer goods, such as refrigerators, washing machines,
colour televisions and personal computers, retailers are
marketing their goods more aggressively by providing
easy fnancing options to the consumers by partnering
with banks.
While this is aimed at the lower and middle income
groups, the higher income groups are also being attracted
by opportunity.
Critical Success Factors for Manufacturers
in the Sector
All key segments of the Indian consumer durables industry
are growing and the industry ofers an attractive investment
option. Success would require players to address a few key
factors, based on the industry drivers and trends.
Distribution and Service Network
As the market spreads out from saturated urban regions to
low penetration rural areas and tier II/III towns, distribution
network and brand recognition will continue to play ever
more signifcant roles in determining market share and
proftability. The market for consumer durables is moving
towards a stage where it could soon be defned “as broad
as it can be reached”. The central government plans
of making electricity available for all by 2012, will also
open up immense opportunities for the consumer
durables segment.
Product Technology
While the market is continuously expanding, there are
several concerns that will have to be addressed while
moving the focus towards tier III towns and rural areas. Total
cost of ownership would be a key factor that would drive
purchase in these regions. From an organised industry’s
perspective, success would be determined by superiority of
product technology, which could provide added benefts
to the customer, for example; low power consumption, low
service requirement and low cost of operation.
n Raw materials n Staff cost n Other expenditure
n Depreciation n Interest n Tax
Cost Structure of Companies for Quarter Ended June ‘07
180 100 80 60 40 20 0
Blue Star
Goldiam
BPL
Videocon
Voltas
Whirlpool
Mirc
120 140 160
Source: Cygnus Quarterly Report 8/2007, Consumer Durables Industry
7 CONSUMER DURABLES
Innovation in Advertising and Promotions
Increasing competition and technology adoption has
led to a situation where the basic function of most of the
consumer durable goods has been largely commoditised.
This has created a situation where identifying a unique
diferentiating factor and promoting it efectively has
become imperative. The advertising and promotions
spends in the industry have been growing steadily.
Signifcant focus has been laid on mapping key concerns,
that could act as demand drivers and proactive marketing
campaigns aimed at addressing specifc concerns of
prospective customers. For instance, instead of focusing on
the basic space conditioning attribute, LG’s AC marketing
campaigns focus on health benefts resulting from their
superior air fltering technology, thus striking a chord with
urban consumers for whom safety from pollution and dust
is perhaps as signifcant a need as air-conditioning.
Consumer fnancing has become a major engine of
growth in the consumer-durables industry. In the case of
more expensive consumer goods, such as refrigerators,
washing machines, colour televisions and personal
computers, retailers are joining forces with banks and
fnance companies to market their goods more aggressively.
Among department stores, other factors that will support
rising sales include a strong emphasis on retail technology,
loyalty schemes, private labels and the sub-letting of foor
space in larger stores to smaller retailers selling a variety
of products and services, such as musical recordings
and cofee.
Attractive locations
Since raw materials account for more than 75 per cent of
the manufacturing cost of consumer durables and with a
signifcant part of it being imported, Maharashtra’s, Gujarat’s
and Tamil Nadu’s proximity to ports, high demand for
durable goods and factor consolidation in manufacturing
sector make them amongst the more considered
destinations for investment in manufacturing.
OPPORTUNITIES FOR INVESTING IN CONSUMER
DURABLES INDUSTRY
The rapid growth in the consumer durables industry ofers
several attractive investment options. Based on the industry
size, growth trends and key drivers, the following segments
can be outlined for their sustained growth:
• High End CTV
• Mobile Phones
• Distribution & Retail
• Air-conditioners
Some key Observations of Pertinence to Investors
Branded products sell in unorganised retail as well
Brands account for 10 per cent of the total consumer
goods market in India, while organised retailing is around
2 per cent of the total industry. Though branded products
are perceived to be costlier than non-branded products, the
penetration of branded products is increasing. The relative
shares of branded products and organised retail indicate
that a signifcant share of branded products is being sold
through unorganised channels. This highlights the need for
a strong distribution network to penetrate deeper into the
potential market.
Diferent requirements to address urban and rural
population
While income levels are rising across consumer segments
in both urban and rural markets, the level of infrastructure
development and facilities vary widely across these
markets. This has resulted in the emergence of two separate
consumer segments with diferent demands. Independent
retail outlets, handcarts and kiosks serve rural areas. In cities,
independent retailers, retail chains (including shopping
malls), department stores and supermarkets are becoming
increasingly common.
Products need to address Indian working environment
The other major infuence on the consumer durable industry
is product customisation to address unique requirements of
the Indian market. Some examples of products customised
for India include refrigerators that can keep foodstuf cool
for long even during a power cut and washing machines
with extra rinse cycles. At the same time, these features are
to be delivered at no extra cost to the consumer, given the
price sensitive nature of the market.
8 MARKET & OPPORTUNITIES
The consumer durables industry in India is set for sustained
growth over the long term, fuelled by favourable consumer
demographics, overall growth in services and industrial
sectors and infrastructure development in suburban and
rural areas. Several Indian and MNC players are looking
to strengthen their presence in India to leverage this
opportunity.
Success in the long-term will require frms to develop
a wide and robust distribution network, diferentiate
their products in areas of relevance to the consumer and
innovate in the areas of promotion, product fnancing, etc.
The product and approach to market need to be customised
to suit the unique needs of the Indian market.
Conclusion
9 CONSUMER DURABLES
Profles of Key Players
BLUESTAR
Net Sales (US$ million) = 354.97 (FY’07)
PAT (US$ million) = 15.78
EPS (Cents) = 17.56
P/E = 26.4
ROE = 33 per cent
ROCE = 28 per cent
Blue Star is the largest central air-conditioning company
with a network of 23 ofces, four modern manufacturing
facilities and around 2,000 employees. It fulfls
air-conditioning needs of a large number of corporate and
commercial customers and has also established leadership
in the feld of commercial refrigeration equipment ranging
from water coolers to cold storages.
The company recorded an increase in net sales by 48
per cent to US$ 102.46 million in Q1,FY‘08 compared to
US$ 69.23 million in Q1,FY‘07. For fnancial year ended
March 2007, the company recorded an increase in proft by
46 per cent to US$ 15.78 million and is expected to reach
US$ 24.50 million and US$ 33.36 million in the fnancial year
ending March 2008 and March 2009 respectively. The net
sales of the company in the fnancial year ended March’07
recorded an increase of 36 per cent to US$ 354.97 million
and is expected to increase to US$ 479.56 million and US$
640.32 million in the fnancial year ending March 2008
and March 2009 respectively. This increase in proft can be
attributed to the company’s plans to expand, to increase
its production capacity and enhancing its product range,
by developing special purpose products and comfort
application. The company is setting up a new manufacturing
plant in Thane.
MIRC ELECTRONICS
Net Sales (US$ million) = 355.60 (FY’07)
PAT (US$ million) = 7.50
EPS (Cents) = 5.27
P/E = 7.18
ROE = 14 per cent
ROCE = 21 per cent
MIRC Electronics commands strong brand equity largely
owing to the success of its Onida brand among consumers.
The company aims at technology leadership. The fnest
design have made the company a leading player in the
electronics and entertainment business today.
For fnancial year ended March 2007, the company
recorded change in the proft by 3 per cent to US$ 7.49
million. The net sales of the company in the fnancial
year ended 2007 recorded an increase of 24 per cent to
US$ 335.60 million and is expected to increase to
US$ 422.81 million and US$ 540.03 million in the fnancial
year ending March 2008 and March 2009, respectively.
The operating proft of the company during fscal
year 07 increased by 1 per cent as compared to fnancial
year 06 due to increase in net sales by 24 per cent
ofset by an increase in operational expenditure of
26 per cent.
The company is planning to set up a manufacturing
plant in Uttaranchal for manufacturing various consumer
electronic products. This plant aims to take advantage of
direct and excise tax benefts. Although, nothing has been
fnalised yet, it is likely that the expenditure for the project
will be fnanced through internal accruals.
MARKET & OPPORTUNITIES 10
VOLTAS
Voltas is an engineering company of the US$ 8.86 billion
Tata Group. The company ofers engineering solutions in
areas such as heating, ventilation and air-conditioning,
refrigeration, electro-mechanical projects, textile
machinery, machine tools, mining and construction
equipment, materials handling, water management,
building management systems, indoor air quality and
chemicals. The operations have been organised into four
independent business specifc clusters: air conditioning
and refrigeration, unitary products, engineering products
and international operations.
The company recorded an increase in net sales of 44
per cent to reach US$ 184.81 million in Q1,FY’08 compared
to US$ 128.66 million in Q1,FY’07. For fnancial year ended
March 2007, the company recorded a proft of 22 per cent
to US$ 26.16 million. The net sales of the company in the
fnancial year ended 2007 recorded an increase of 30 per
cent to US$ 532.15 million.
Voltas has tied up with RBS Home Appliances Ltd for the
use of 640 service centres that Voltas has across the country
for after sales services.
VIDEOCON
Videocon is a market leader of consumer electronics
and home appliances in India. Videocon manufactures
home appliances such as refrigerators, microwave ovens,
compressors, ACs and washing machines.
The company recorded a change in net sales by -3 per
cent to US$ 64.08 million in Q1,FY’08 compared to US$
65.75 million in Q1,FY’07. For fnancial year ended March
2007, the company recorded a change in the proft by 3 per
cent to US$ 7.24 million. The net sales of the company in
the fnancial year ended 2007 recorded an increase of 3 per
cent to US$ 258.65 million
Videocon is planning to acquire Daewoo’s consumer
electronic businesses worldwide. The acquisition would
bring Daewoo’s consumer electronics business including
LCD TVs, plasma TVs and components into Videocon’s fold,
strengthening its position in the industry. It would also have
a strategic ft into the group as it would fnd a consuming
partner for its recently-acquired Thomson’s picture tube
business.
BAJAJ ELECTRICALS
Net Sales (US$ million) = 239.12 (FY’07)
PAT (US$ million) = 8.67
EPS (US$) = 0.99
P/E = 8.71
ROE = 39 per cent
ROCE = 24 per cent
Bajaj Electricals is engaged in marketing of various
consumer household and industrial goods. They are
also into the business of manufacturing, erection and
commissioning of transmission line towers, telecom towers,
mobile telecom towers and wind energy towers. Its plants
are located in Maharashtra.
The company recorded an increase in net sales by 33
per cent to US$ 55.92 million in Q1,FY’08 compared to
US$ 42.01 million in Q1,FY’07. For fnancial year ended
March 2007, the company recorded an increase in the proft
by 39 per cent to US$ 8.67 million and is expected to reach
US$ 13.72 million and US$ 18.18 million in FY’08 and FY’09
respectively. The net sales of the company in the fnancial
year ended 2007 recorded an increase of 28 per cent to
US$ 239.12 million and is expected to increase to US$
310.83 million and US$ 413.43 million in the fnancial year
ending March 2008 and March 2009 respectively.
Bajaj Electricals is planning to outsource manufacturing
of gas appliances and water dispensers, which will be
marketed under its own brand, reports agency sources. The
company aims to introduce two new lines of products into
the market by end of 2007. The company is further planning
to introduce inverters into the market by September-
October this year, as well as expanding the capacity of its
Ranjangaon facility with an investment of US$ 9.97 million.
NOKIA- A SUCCESSFUL MNC IN INDIA
Mobile phone landscape in 1995 was one open business
opportunity for all the players to capture and succeed.
Nokia was one company that succeeded in capturing this
opportunity efectively. One of the key diferences between
Nokia and its competitors was that Nokia was completely
focused on mobile phones; while its competitors had
consumer electronics, home appliances, etc. The case study
analyses what went right for Nokia and its success strategy.
11 CONSUMER DURABLES
Being focused and ahead of the curve are the chief
components of Nokia’s strategy. Nokia invested in each
vertical of the handset ecosystem -- manufacturing,
distribution, design and R&D.
THE DISTRIBUTION LEADER
Nokia started distributing its phones through a partnership
with HCL (formerly Hindustan Computers Ltd.), which had
already built an extensive network for its own products.
Recently, Nokia has decided to supplement that with its
own distribution eforts. Nokia’s lead in distribution is
clear. Today, India has some 95,000 outlets that sell mobile
phones. It is estimated that Nokia has a monopoly presence
in more than half of them.
MANUFACTURING EDGE
Nokia’s big investment in India has been in the
Manufacturing and R&D centers in India. Nokia has several
R&D centers and labs in India including a $150 million
handset manufacturing facility in Chennai setup in 2005.
More than 25 million handsets have been produced so far
with almost 30 per cent of them exported to neighboring
countries.
THE “BRAND”
Whether it is N series or the E series, the key focus is the
‘Mother Brand’ – Nokia. All the products for various
segments of the market from low-end to high-end are
produced under the Nokia brand. Nokia brand is present
across price segments with value for money at that price
with a most sought after and must have brand image.
‘LOCAL’ PRODUCTS
Nokia built custom-made mobiles for Indian conditions.
The Nokia 1100, the frst made-for-India phone, has been a
runaway success. Having a torch built into a mobile phone
is a distinct and tangible beneft which helps in a country
with frequent power cuts.
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doc_306556632.pdf
The Consumer Durables industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, airconditioners and washing machines. Instruments such as cellphones and kitchen appliances like microwave ovens are also included in this category.
Consumer Durables
MARKET & OPPORTUNITIES
CONTENTS
Indian Consumer Durables Industry 2
Conclusion 8
Profles of Key Players 9
A report by KPMG for IBEF
Consumer Durables
MARKET & OPPORTUNITIES
2 MARKET & OPPORTUNITIES
Indian Consumer Durables Industry
The Consumer Durables industry consists of durable
goods and appliances for domestic use such as televisions,
refrigerators, airconditioners and washing machines.
Instruments such as cellphones and kitchen appliances like
microwave ovens are also included in this category. The
sector has been witnessing signifcant growth in recent
years, helped by several drivers such as the emerging retail
boom, real estate and housing demand, greater disposable
income and an overall increase in the level of afuence
of a signifcant section of the population. The industry is
represented by major international and local players such
as BPL, Videocon, Voltas, Blue Star, MIRC Electronics, Titan,
Whirlpool, etc.
The consumer durables industry can be broadly
classifed into two segments: Consumer Electronics and
Consumer Appliances. Consumer Appliances can be further
categorised into Brown Goods and White Goods. The key
product lines under each segment are as follows.
INDUSTRY SIZE, GROWTH, TRENDS
The consumer durables market in India was estimated to
be around US$ 4.5 billion in 2006-07. More than 7 million
units of consumer durable appliances have been sold in
the year 2006-07 with colour televisions (CTV) forming the
bulk of the sales with 30 per cent share of volumes. CTV,
refrigerators and Air-conditioners together constitute more
than 60 per cent of the sales in terms of the number of
units sold.
In the refrigerators market, the frost-free category has
grown by 8.3 per cent while direct cool segment has grown
by 9 per cent. Companies like LG, Whirlpool and Samsung
have registered double-digit growth in the direct cool
refrigerator market.
In the case of washing machines, the semi-automatic
category with a higher base and fully-automatic categories
have grown by 4 per cent to 526,000 units and by 8 per cent
to 229,000 units, respectively.
In the air-conditioners segment, the sales of window
ACs have grown by 32 per cent and that of split ACs
by 97 per cent.
Since the penetration in the urban areas for these
Consumer Durables
White Goods Kitchen Applicances/Brown Goods Consumer Electronics
• Refrigerators
• Washing Machines
• Air-conditioners
• Speakers and Audio Equipments
• Mixers
• Grinders
• Microwave Ovens
• Iron
• Electric Fans
• Cooking Range
• Chimneys
• Mobile Phones
• Televisions
• MP3 Players
• DVD Players
• VCD Players
Source: Cygnus Quarterly Report, Aug 2007, Edelweiss Report on Industrial Production
Key Consumer Durables - Share by Volume
Colour Television sets (CTVs) 30%
Refrigerators 18%
Air-conditioners 13%
Washing Machines 5%
Others 34%
3 CONSUMER DURABLES
products is already quite high, the markets for both CTVs
and refrigerators are shifting to the semi-urban and rural
areas.
The growth across product categories in diferent segments
is assessed in the following sections.
Consumer Electronics
The CTV production was 15.10 million units in 2006-07
and is expected to grow by at least 25 per cent. At the
disaggregated level, conventional CTV volumes have
been falling while fat TVs have grown strongly. Market
sources indicate that most CTV majors have phased out
conventional TVs and have been instead focusing more
on fat TVs. The fat segment of CTVs now account for over
60 per cent of the total domestic TV production and is likely
to be around 65 per cent in 2007-08.
High-end products such as liquid crystal display (LCD)
and plasma display CTV grew by 400 per cent and 150 per
cent respectively in 2006–07 following a sharp decline
in prices of these products and this trend is expected to
continue.
The audio/video player market has seen signifcant
growth rates in the domestic market as prices have
dropped. This trend is expected to continue through 2007-
08, as competition is likely to intensify to scale and capture
the mass market.
Mobile Phones – The New Opportunity
Mobile phone production in India is expected to grow at
a Compound Annual Growth Rate (CAGR) of 28.3 per cent
from 31 million units in 2006 to 107 million units in 2011.
Production of mobile phones is expected to be a US$
13.6 billion industry by 2011. The current US$ 4.9 billion
industry revenue is growing at a CAGR of 26.6 per cent. The
growth of mobile telephony market is highest in India with
6 to 7 million subscribers being added on a monthly basis
compared to the US, which adds 2 million subscribers and
China, which adds about 5 million subscribers.
India is also emerging as a global base for handsets as
key global players. India produced nearly 31 million mobile
phones in 2006 worth about US$ 5 billion. This segment
made the largest contribution to overall electronics
production revenue and the total available market for
semiconductors. For 2007, it is projected that the handset
production will increase by 68 per cent in volume to about
51 million units and 65 per cent in value terms. Starting
on an already strong base, over six million users are being
added every month and are building a large local market
for mobile manufacturers.
Low mobile penetration and favourable government
policies are driving global mobile phone manufacturers
to set up manufacturing facilities in India. Nokia started
its manufacturing unit in Chennai in January 2006 and
produced about 25 million handsets in the frst year of its
operation. India has now become the second largest market
for Nokia phones in the world. Nokia is also exporting
mobiles from its Indian facilities to Sri Lanka. Motorola
and Electronics Manufacturing Service vendors (EMS) like
Foxconn and Flextronics have also set up plants in India.
According to a study by Gartner, though the world’s top
fve handset makers will retain a major share of production
volume, local manufacturers can be expected to capture up
to a ffth of India’s overall mobile phone production volume
by the end of 2011. Growing demand for low-cost mobile
phones and the need for EMS vendors to reduce their
revenue exposure to Nokia, Motorola and Sony Ericsson,
for whom they are now manufacturing in India, are the
key factors expected to contribute to this trend. Most of
the components are imported today. Development of local
component manufacturing industry will be essential for
continuous growth of total handset manufacturing. Given
the price-sensitivity of the Indian consumer, access to low-
cost, feature-rich and local-specifc chip designs, as well as
a strong distribution network, remain key considerations in
this market. Key stakeholders in the mobile phone industry
value chain provide these, and local manufacturers could
be expected to look to form alliances and partnerships
White Goods
Increased consumer demand is expected to boost the
white goods segment to achieve production levels of
US$ 5.09 billion by the end of 2007-08 against US$ 4.54
billion in 2006-07, with a growth rate of 12.5 per cent.
Air-Conditioners
Growth in the white goods segment was largely driven
by the Air-conditioner (AC) segment. Within this, split ACs
have been the main growth drivers, recording a growth
of over 90 per cent in 2006. Growth, albeit at a slower rate
MARKET & OPPORTUNITIES 4
of 32 per cent, has also been experienced in the segment
of window ACs. The window AC segment is slightly less
organised as compared to split AC segment. The market for
air-conditioners is divided quite uniformly across customer
segments, with about 45 per cent share for private sector
corporates, 20 per cent for domestic use, 15 per cent each
for public sector companies and government use and
5 per cent for hospitals.
Washing Machines
The sales of washing machines has grown from about
780,000 units to 1,948,000 units during the period, fscal
year 1999 to 2007, registering a near 12.2 per cent annual
growth rate.
The washing machine market may be segmented
into semi-automatic and fully automatic machines. Semi-
automatic washing machines enjoy a dominant share of
85 per cent. Fully automatic washing machines have been
gaining share as a consequence of product improvement,
competitive pricing and resultant convenience. However,
semi-automatic machines will continue to play a major role
in the Indian market for quite sometime. Fully automatic
washing machines have been the growing at 44.5 per cent
and semi-automatic segment, at about 18 per cent.
The entry of MNCs has widened the range to more than
10 brands with a proliferation of models, while ensuring
technology upgradation. A visible impact of this churn has
been the exit of a few established players from the market.
Refrigerators
Refrigerators are one of the most sought after appliances
in Indian middle class homes. The refrigerator market has
two segments: Direct Cool and the relatively new Frost-Free
type. The market for refrigerators in 2006-07 was about
6.5 million units. The growth of refrigerator segment is
projected to be between 18 to 22 per cent over the next
5 years.
A critical success factor for the refrigerator market,
given its widespread use, is deeper reach into the market
and increased penetration. Recently, the market is getting
reinforced by the replacement segment as well.
Vacuum Cleaners
Vacuum Cleaners are an emerging segment in the Indian
market, still at a nascent stage. The drivers for demand have
been the improvement in life style and higher aspirations of
urban middle class and the top income brackets. While the
market has been growing, this segment is not expected to
reach signifcant volumes soon.
Part of this could be attributed to the lifestyle
compatibility of Indian customers with the product. In
the large majority of Indian houses, for instance, foors
are not carpeted and the product will have to meet
dual requirements of sweeping and mopping. Another
impediment to the adoption of vacuum cleaners has been
the availability of cheap domestic help in most cities.
Market Segment, ACs India , 2006
n Windows n Split
unorganised
Organised
30 40 90 60 50 10 70 80 20
per cent
Market share (Segmentation),ACs India, 2006
Pvt Sector 25%
Domestic 20%
Corporate 20%
Public Sector 15%
Government 15%
Hospitals 5%
Washing Machines (Sales in Units)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Source: CMIE
2002-03 2003-04 2004-05 2005-06 2006-07
Units
5 CONSUMER DURABLES
Domestic Electrical Appliances
Brown goods or domestic kitchen appliances are indicators
of the changing consumer scenario in post-liberalisation
economic environment. The major products constituting
the brown goods market are mixers, grinders, irons,
microwave-ovens, rice cookers, water heaters or geysers,
electric fans and exhausts.
The branded brown goods market has expanded at a
signifcant pace and is expected to retain the momentum
into the future as well. The market has been transformed
by the entry of over a dozen new brands, moreover
competition has intensifed. While focus on price
competency remains a key priority, players have also started
focusing on other product features such as safety and total
cost of ownership of the device.
Goods, like the rice cooker have been continuously
growing in a slow and steady manner over a signifcant
period of time, while microwave ovens have grown
exponentially after the initial period of customisation to
local requirements.
The electrical iron market can be divided into two
segments: heavy and light-weight. The market is also
segmented into two sub-segments: steam and non-steam
irons.
India being a tropical country, electric fans are an
essential utility for more than six months of the year in most
parts of the country. The present market size is estimated
at around 11.6 million pieces. The market is divided among
ceiling, pedestal, wall and table fans. Industrial and exhaust
fans are another important segment. The major players
include Orient Fan, Crompton Greaves, Jay Engineering,
Bajaj Electricals, Polar, Khaitan and Alsthom.
The electrical appliances industry, which had been
focused on the urban market, is now reaching out to
semi-urban and rural markets as well, because of the shift
in living style of the population, increasing electrification
of villages and relatively higher purchasing power of
consumers. As the market penetrates into the core
middle class segment in both urban and rural areas, it
is expected to expand phenomenally, offering large
volumes to the industry.
Trends Favoring the Growth of the Consumer
Durables Industry
The key trends that impact the Indian Consumer Durables
Industry today are refected in the diagram and discussed
separately in the following sections.
Increasing Share of Organised Retail
The urban and rural markets in India are growing at an
annual rate of 7 to 10 per cent and 25 per cent respectively.
One of the key enablers of this growth has been the
increasing penetration of organised retail. While there are
established distribution networks in both rural and urban
India, the presence of well-known brands and organised
sector is increasing.
At present around 96 per cent of the more than 5 million
retail premises of all types in India are smaller than 50 sq mtrs.
This situation is, however, transforming. Shopping malls are
becoming increasingly common in Indian cities, and based
on plans announced by key developers, a proliferation of
new malls is expected over the next three years. Although
many of the new malls would be much smaller than their
western counterparts, Indian consumers will have a far
larger number of attractive, comfortable, brand-conscious
outlets in which to shop. As a result, the organised retail
industry is expected to cover a market share of 15 to 18 per
cent by the end of 2010, from just 3 per cent at present.
This will have a positive impact on the consumer
durables industry, as organised retailing would not only
streamline the supply chain, but also facilitate increased
demand, especially for high-end and branded products
Income growth
and availability of
financing
Growth of
organised
retail
Indian Consumer
Durables Industry
Falling prices
increasing
affordability
Increased
competition due
to entry of large
players
Apprediation
of the Rupee
MARKET & OPPORTUNITIES 6
Narrowed Price Gap and Increased Afordability
of Products
Advanced technology and increasing competition is
narrowing the price gap between products in this sector,
which has driven demand and enabled high growth.
Products that were once beyond the reach of the middle
class Indian are now afordable to many. Growth in
demand for products, once considered luxuries, such as
air-conditioners, washing machines and high end CTVs, is a
refection of this phenomenon.
Entry of Large Players Increasing Competition
With potential heavyweight retail stores like Croma,
E Zone and Reliance Digital, the high-end segment has been
exposed to a new form of purchase, allowing the consumer
to feel/experience the product in a suitable ambience
(signifcant in decision-making). Part of the growth
momentum in high-end segments of consumer electronics
could be attributed to the competitive evolution of
organised retail, stimulating the demand through exposure
to high end shopping experiences.
Rupee Appreciation
Raw material cost constitutes more than 75 per cent of
expenditure incurred by consumer durable manufacturers
in India. The rapid appreciation of rupee vis-à-vis the US
dollar in 2007 is expected to ease raw materials costs for
Indian manufacturers and beneft those addressing the
domestic market.
Income Growth and Structural Changes
Apart from steady growth in income of consumers,
consumer fnancing has become a major driver in the
consumer durables industry. In the case of more expensive
consumer goods, such as refrigerators, washing machines,
colour televisions and personal computers, retailers are
marketing their goods more aggressively by providing
easy fnancing options to the consumers by partnering
with banks.
While this is aimed at the lower and middle income
groups, the higher income groups are also being attracted
by opportunity.
Critical Success Factors for Manufacturers
in the Sector
All key segments of the Indian consumer durables industry
are growing and the industry ofers an attractive investment
option. Success would require players to address a few key
factors, based on the industry drivers and trends.
Distribution and Service Network
As the market spreads out from saturated urban regions to
low penetration rural areas and tier II/III towns, distribution
network and brand recognition will continue to play ever
more signifcant roles in determining market share and
proftability. The market for consumer durables is moving
towards a stage where it could soon be defned “as broad
as it can be reached”. The central government plans
of making electricity available for all by 2012, will also
open up immense opportunities for the consumer
durables segment.
Product Technology
While the market is continuously expanding, there are
several concerns that will have to be addressed while
moving the focus towards tier III towns and rural areas. Total
cost of ownership would be a key factor that would drive
purchase in these regions. From an organised industry’s
perspective, success would be determined by superiority of
product technology, which could provide added benefts
to the customer, for example; low power consumption, low
service requirement and low cost of operation.
n Raw materials n Staff cost n Other expenditure
n Depreciation n Interest n Tax
Cost Structure of Companies for Quarter Ended June ‘07
180 100 80 60 40 20 0
Blue Star
Goldiam
BPL
Videocon
Voltas
Whirlpool
Mirc
120 140 160
Source: Cygnus Quarterly Report 8/2007, Consumer Durables Industry
7 CONSUMER DURABLES
Innovation in Advertising and Promotions
Increasing competition and technology adoption has
led to a situation where the basic function of most of the
consumer durable goods has been largely commoditised.
This has created a situation where identifying a unique
diferentiating factor and promoting it efectively has
become imperative. The advertising and promotions
spends in the industry have been growing steadily.
Signifcant focus has been laid on mapping key concerns,
that could act as demand drivers and proactive marketing
campaigns aimed at addressing specifc concerns of
prospective customers. For instance, instead of focusing on
the basic space conditioning attribute, LG’s AC marketing
campaigns focus on health benefts resulting from their
superior air fltering technology, thus striking a chord with
urban consumers for whom safety from pollution and dust
is perhaps as signifcant a need as air-conditioning.
Consumer fnancing has become a major engine of
growth in the consumer-durables industry. In the case of
more expensive consumer goods, such as refrigerators,
washing machines, colour televisions and personal
computers, retailers are joining forces with banks and
fnance companies to market their goods more aggressively.
Among department stores, other factors that will support
rising sales include a strong emphasis on retail technology,
loyalty schemes, private labels and the sub-letting of foor
space in larger stores to smaller retailers selling a variety
of products and services, such as musical recordings
and cofee.
Attractive locations
Since raw materials account for more than 75 per cent of
the manufacturing cost of consumer durables and with a
signifcant part of it being imported, Maharashtra’s, Gujarat’s
and Tamil Nadu’s proximity to ports, high demand for
durable goods and factor consolidation in manufacturing
sector make them amongst the more considered
destinations for investment in manufacturing.
OPPORTUNITIES FOR INVESTING IN CONSUMER
DURABLES INDUSTRY
The rapid growth in the consumer durables industry ofers
several attractive investment options. Based on the industry
size, growth trends and key drivers, the following segments
can be outlined for their sustained growth:
• High End CTV
• Mobile Phones
• Distribution & Retail
• Air-conditioners
Some key Observations of Pertinence to Investors
Branded products sell in unorganised retail as well
Brands account for 10 per cent of the total consumer
goods market in India, while organised retailing is around
2 per cent of the total industry. Though branded products
are perceived to be costlier than non-branded products, the
penetration of branded products is increasing. The relative
shares of branded products and organised retail indicate
that a signifcant share of branded products is being sold
through unorganised channels. This highlights the need for
a strong distribution network to penetrate deeper into the
potential market.
Diferent requirements to address urban and rural
population
While income levels are rising across consumer segments
in both urban and rural markets, the level of infrastructure
development and facilities vary widely across these
markets. This has resulted in the emergence of two separate
consumer segments with diferent demands. Independent
retail outlets, handcarts and kiosks serve rural areas. In cities,
independent retailers, retail chains (including shopping
malls), department stores and supermarkets are becoming
increasingly common.
Products need to address Indian working environment
The other major infuence on the consumer durable industry
is product customisation to address unique requirements of
the Indian market. Some examples of products customised
for India include refrigerators that can keep foodstuf cool
for long even during a power cut and washing machines
with extra rinse cycles. At the same time, these features are
to be delivered at no extra cost to the consumer, given the
price sensitive nature of the market.
8 MARKET & OPPORTUNITIES
The consumer durables industry in India is set for sustained
growth over the long term, fuelled by favourable consumer
demographics, overall growth in services and industrial
sectors and infrastructure development in suburban and
rural areas. Several Indian and MNC players are looking
to strengthen their presence in India to leverage this
opportunity.
Success in the long-term will require frms to develop
a wide and robust distribution network, diferentiate
their products in areas of relevance to the consumer and
innovate in the areas of promotion, product fnancing, etc.
The product and approach to market need to be customised
to suit the unique needs of the Indian market.
Conclusion
9 CONSUMER DURABLES
Profles of Key Players
BLUESTAR
Net Sales (US$ million) = 354.97 (FY’07)
PAT (US$ million) = 15.78
EPS (Cents) = 17.56
P/E = 26.4
ROE = 33 per cent
ROCE = 28 per cent
Blue Star is the largest central air-conditioning company
with a network of 23 ofces, four modern manufacturing
facilities and around 2,000 employees. It fulfls
air-conditioning needs of a large number of corporate and
commercial customers and has also established leadership
in the feld of commercial refrigeration equipment ranging
from water coolers to cold storages.
The company recorded an increase in net sales by 48
per cent to US$ 102.46 million in Q1,FY‘08 compared to
US$ 69.23 million in Q1,FY‘07. For fnancial year ended
March 2007, the company recorded an increase in proft by
46 per cent to US$ 15.78 million and is expected to reach
US$ 24.50 million and US$ 33.36 million in the fnancial year
ending March 2008 and March 2009 respectively. The net
sales of the company in the fnancial year ended March’07
recorded an increase of 36 per cent to US$ 354.97 million
and is expected to increase to US$ 479.56 million and US$
640.32 million in the fnancial year ending March 2008
and March 2009 respectively. This increase in proft can be
attributed to the company’s plans to expand, to increase
its production capacity and enhancing its product range,
by developing special purpose products and comfort
application. The company is setting up a new manufacturing
plant in Thane.
MIRC ELECTRONICS
Net Sales (US$ million) = 355.60 (FY’07)
PAT (US$ million) = 7.50
EPS (Cents) = 5.27
P/E = 7.18
ROE = 14 per cent
ROCE = 21 per cent
MIRC Electronics commands strong brand equity largely
owing to the success of its Onida brand among consumers.
The company aims at technology leadership. The fnest
design have made the company a leading player in the
electronics and entertainment business today.
For fnancial year ended March 2007, the company
recorded change in the proft by 3 per cent to US$ 7.49
million. The net sales of the company in the fnancial
year ended 2007 recorded an increase of 24 per cent to
US$ 335.60 million and is expected to increase to
US$ 422.81 million and US$ 540.03 million in the fnancial
year ending March 2008 and March 2009, respectively.
The operating proft of the company during fscal
year 07 increased by 1 per cent as compared to fnancial
year 06 due to increase in net sales by 24 per cent
ofset by an increase in operational expenditure of
26 per cent.
The company is planning to set up a manufacturing
plant in Uttaranchal for manufacturing various consumer
electronic products. This plant aims to take advantage of
direct and excise tax benefts. Although, nothing has been
fnalised yet, it is likely that the expenditure for the project
will be fnanced through internal accruals.
MARKET & OPPORTUNITIES 10
VOLTAS
Voltas is an engineering company of the US$ 8.86 billion
Tata Group. The company ofers engineering solutions in
areas such as heating, ventilation and air-conditioning,
refrigeration, electro-mechanical projects, textile
machinery, machine tools, mining and construction
equipment, materials handling, water management,
building management systems, indoor air quality and
chemicals. The operations have been organised into four
independent business specifc clusters: air conditioning
and refrigeration, unitary products, engineering products
and international operations.
The company recorded an increase in net sales of 44
per cent to reach US$ 184.81 million in Q1,FY’08 compared
to US$ 128.66 million in Q1,FY’07. For fnancial year ended
March 2007, the company recorded a proft of 22 per cent
to US$ 26.16 million. The net sales of the company in the
fnancial year ended 2007 recorded an increase of 30 per
cent to US$ 532.15 million.
Voltas has tied up with RBS Home Appliances Ltd for the
use of 640 service centres that Voltas has across the country
for after sales services.
VIDEOCON
Videocon is a market leader of consumer electronics
and home appliances in India. Videocon manufactures
home appliances such as refrigerators, microwave ovens,
compressors, ACs and washing machines.
The company recorded a change in net sales by -3 per
cent to US$ 64.08 million in Q1,FY’08 compared to US$
65.75 million in Q1,FY’07. For fnancial year ended March
2007, the company recorded a change in the proft by 3 per
cent to US$ 7.24 million. The net sales of the company in
the fnancial year ended 2007 recorded an increase of 3 per
cent to US$ 258.65 million
Videocon is planning to acquire Daewoo’s consumer
electronic businesses worldwide. The acquisition would
bring Daewoo’s consumer electronics business including
LCD TVs, plasma TVs and components into Videocon’s fold,
strengthening its position in the industry. It would also have
a strategic ft into the group as it would fnd a consuming
partner for its recently-acquired Thomson’s picture tube
business.
BAJAJ ELECTRICALS
Net Sales (US$ million) = 239.12 (FY’07)
PAT (US$ million) = 8.67
EPS (US$) = 0.99
P/E = 8.71
ROE = 39 per cent
ROCE = 24 per cent
Bajaj Electricals is engaged in marketing of various
consumer household and industrial goods. They are
also into the business of manufacturing, erection and
commissioning of transmission line towers, telecom towers,
mobile telecom towers and wind energy towers. Its plants
are located in Maharashtra.
The company recorded an increase in net sales by 33
per cent to US$ 55.92 million in Q1,FY’08 compared to
US$ 42.01 million in Q1,FY’07. For fnancial year ended
March 2007, the company recorded an increase in the proft
by 39 per cent to US$ 8.67 million and is expected to reach
US$ 13.72 million and US$ 18.18 million in FY’08 and FY’09
respectively. The net sales of the company in the fnancial
year ended 2007 recorded an increase of 28 per cent to
US$ 239.12 million and is expected to increase to US$
310.83 million and US$ 413.43 million in the fnancial year
ending March 2008 and March 2009 respectively.
Bajaj Electricals is planning to outsource manufacturing
of gas appliances and water dispensers, which will be
marketed under its own brand, reports agency sources. The
company aims to introduce two new lines of products into
the market by end of 2007. The company is further planning
to introduce inverters into the market by September-
October this year, as well as expanding the capacity of its
Ranjangaon facility with an investment of US$ 9.97 million.
NOKIA- A SUCCESSFUL MNC IN INDIA
Mobile phone landscape in 1995 was one open business
opportunity for all the players to capture and succeed.
Nokia was one company that succeeded in capturing this
opportunity efectively. One of the key diferences between
Nokia and its competitors was that Nokia was completely
focused on mobile phones; while its competitors had
consumer electronics, home appliances, etc. The case study
analyses what went right for Nokia and its success strategy.
11 CONSUMER DURABLES
Being focused and ahead of the curve are the chief
components of Nokia’s strategy. Nokia invested in each
vertical of the handset ecosystem -- manufacturing,
distribution, design and R&D.
THE DISTRIBUTION LEADER
Nokia started distributing its phones through a partnership
with HCL (formerly Hindustan Computers Ltd.), which had
already built an extensive network for its own products.
Recently, Nokia has decided to supplement that with its
own distribution eforts. Nokia’s lead in distribution is
clear. Today, India has some 95,000 outlets that sell mobile
phones. It is estimated that Nokia has a monopoly presence
in more than half of them.
MANUFACTURING EDGE
Nokia’s big investment in India has been in the
Manufacturing and R&D centers in India. Nokia has several
R&D centers and labs in India including a $150 million
handset manufacturing facility in Chennai setup in 2005.
More than 25 million handsets have been produced so far
with almost 30 per cent of them exported to neighboring
countries.
THE “BRAND”
Whether it is N series or the E series, the key focus is the
‘Mother Brand’ – Nokia. All the products for various
segments of the market from low-end to high-end are
produced under the Nokia brand. Nokia brand is present
across price segments with value for money at that price
with a most sought after and must have brand image.
‘LOCAL’ PRODUCTS
Nokia built custom-made mobiles for Indian conditions.
The Nokia 1100, the frst made-for-India phone, has been a
runaway success. Having a torch built into a mobile phone
is a distinct and tangible beneft which helps in a country
with frequent power cuts.
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Exchange Rate Used
Year Exchange Rate
(INR/US$)
2000-01 45.75
2001-02 47.73
2002-03 48.42
2003-04 45.95
2004-05 44.87
2005-06 44.09
2006-07 45.11
India Brand Equity Foundation (IBEF) is a public-private partnership
between the Ministry of Commerce & Industry, Government of India
and the Confederation of Indian Industry. It aims to effectively present
the India business perspective and leverage business partnerships
in a globalising market-place.
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