Consumer Durables Market -- An Overview November 23, 2011 Before the liberalization of the Indian economy, only a few

companies like Kelvinator, Godrej, Alwyn, and Voltas were the major players in the consumer durables market, accounting for no less than 90% of the market. Then, after the liberalization, foreign players like LG, Sony, Samsung, Whirlpool, Daewoo, and Aiwa came into the picture. Today, these players control the major share of the consumer durables market. The market share of MNCs in consumer durables sector is 65 per cent. MNC's major target is the growing middle class of India. MNCs offer superior technology to the consumers whereas the Indian companies compete on the basis of firm grasp of the local market, their well acknowledged brands, and hold over wide distribution network. Key Industry Dynamics Industry Size: Rs. 350bn Key Categories: White Goods, Brown goods and Consumer electronics. Competitive landscape: Dominated by Korean majors like LG and Samsung in most of the segments Margin Profile: Low margin, dependant on volumes Growth opportunities: Lower penetration coupled with increasing disposable income The Indian Consumer Durables segment can be segmented into three groups: White goods Air conditioners Refrigerators Washing Machines Sewing Machines Watches and clocks Cleaning equipment Other domestic appliances Brown goods Microwave Ovens Cooking Range Chimneys Mixers Grinders Electronic fans Irons Consumer electronics TVs Audio and video systems Electronic accessories PCs Mobile phones Digital cameras DVDs Camcoders

2. Market Size Consumer Market Size Mn units (2011E) Durables (2010) Flat Panel TV 2.8 4.5 Refrigerator 9.0 12.0 Washing Machines 5.0 6.0 Air Conditioners 3.4 4.4 Microwave 1.0 1.5 Source: CEAMA, MOSPI, GEPL Capital Research Growth (%) 61 33 20 29 44

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Indias consumer electronics devices market, defined as the addressable market for computing devices, mobile handsets and AV products in 200910 is estimated to be US$ 6.28 billion, indicating a growth of 18 per cent over the previous year. It is projected at about US$29.4bn in 2011. This is expected to increase to US$52.6bn by 2015, driven by rising incomes and growing affordability. Spending on consumer electronics devices is projected to grow at an overall CAGR of 12 per cent through 2015, with the key segments including low-cost mobile handsets, colour TVs, set-top boxes and notebook computers. Only nine out of 1,000 people in India own a computer, one-fifth of the level in China, while Indian handset population penetration is about 57 per cent. Among consumer electronics, 21-inch colour TV continues to dominate the market with a 65 per cent share. Computers accounted for about 32 per cent of Indian consumer electronics spending in 2010. BMI forecasts Indian domestic market computer hardware sales (including notebooks and accessories) of US$9.5bn in 2011, up from US$8.4bn in 2010. Sales were up by as much as one-third in 2010 compared with the previous year. With PC penetration of around 2 per cent, the computer hardware compound annual growth rate (CAGR) for the 2011-2015 will be about 15 per cent. Indias domestic video, audio and gaming device market is expected to grow to a value of US$21.7bn in 2015. TV will remain the core product in this category, with sports events such as the 2011 ICC Cricket World Cup driving demand for TV set upgrades. LCD TV set sales are projected to pass 3.7mn in 2011, while vendors also report strong growth in the LED TV set segment. Market Share by Segments

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3. Market Analysis The market for consumer durables has expanded over the years. The household income of Indian houses has experienced significant improvement in the past decades and as a result the demand for durables has also risen. The current projection shows that household income of the population in top 20 cities of India is expected to grow by 10 per cent in the coming years. This is likely to increase the demand for consumer products as well. The middle income group section (household with disposable income between 200, 000 to 1, 000,000) which currently constitutes 5 per cent of the population is expected to become 41 per cent by 2025. Rural poverty is expected to decline to 26 per cent by 2025. All these factors are expected to contribute towards improving the market scenario for consumer durables. The market has recently experienced around 30 per cent growth rate in demand for electronics and home appliances. Categories like Flat panel TVs, Microwave ovens, Air Conditioners and Refrigerators are likely to post strong growth. Urban growth is likely to be driven by new technology/innovative products, lifestyle products and replacement demand such as LED TVs, Laptops, Split ACs, etc. Rural markets are likely to outpace growth in the urban markets led by increasing penetration across categories such as Refrigerators and Washing machines.

Some of the factors that are said to have promoted the growth of the industry are:

Changed lifestyle Higher disposable income Changed taste Affordable prices Boom in housing and real estate industry
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Widened market- expansion of rural market Increased scope for advertising Easy financing- zero interest EMI Easy loans and credit card purchases Festival deals and discounts

Market Trends: New technology and lifestyle trends creating replacement demand Now Flat Panel (LCD, LED) TVs Frost Free Refrigerators Convection Microwave Blue Ray DVD Players, MP3s 4. Growth drivers Key growth drivers include:

Then CRT TV Direct Cool Refrigerator Basic Microwave Cassette Players

Continued economic growth demonstrated through 8.4% CAGR growth in GDP over last 5 years Favourable demographics; 64% of the population in working age category Increasing Urbanization, nuclear families Increase in disposable incomes; which drives consumption Increasing affordability coupled with declining prices of products Lower consumer product penetration Availability of new products and technologies, Easy financing schemes and Increase in organized retail

Rural Markets offer a big opportunity

Rural Consumer durables markets is growing by 30 per cent currently, expected to grow by 45 per cent in FY12 Approximately 69 per cent population resides in rural India yet only 35 per cent sales is contributed by rural markets. However, this sales contribution is expected to increase to ~45 per cent in near future. Rural markets are expected to post much faster growth than urban markets in medium term led by o Increasing rural Income with higher contribution from non farm income. o Miniscule penetration (5-7 per cent) in many product categories generating demand from first time buyers o Increased distribution reach of consumer durable companies o Customized products for rural consumers o Product awareness through advertising o Growth is mainly contributed by first time buyers of products unlike replacement demand in urban markets Improved rural infrastructure, agricultural reforms, power availability will boost growth going forward. Entry of private labels in rural market may fuel competition.

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Key Challenges

Intense competition among players - leading to higher ad spends and lesser pricing power, thereby lowering margins Increase in raw material prices major raw materials (metals) are exhibiting increasing trend posing margin pressures; however, shift in product mix to partially offset increase in input costs over the medium term Changes in technology - making product lifecycles short Rural distribution - availability of products to masses is difficult as 68 per cent of Indias population still lives in rural areas. Entry of cheap products - as private labels in organized retail

5. Company Profiles Samsung India Samsung India commenced its operations in India in December 1995, today enjoys a sales turnover of over US$ 1 billion in just a decade of operations in the country. Samsung design centres are located in London, Los Angeles, San Francisco, Tokyo,
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Shanghai and Romen. Samsung India has its headquartered in New Delhi and has a network of 19 Branch Offices located all over the country. The Samsung manufacturing complex housing manufacturing facilities for Colour Televisions, Colour Monitors, Refrigerators and Washing Machines is located at Noida, near Delhi. Samsung Made in India products like Colour Televisions, Colour Monitors and Refrigerators are being exported to Middle East, CIS and SAARC countries from its Noida manufacturing complex. Samsung India currently employs over 1600 employees, with around 18% of its employees working in Research & Development. Whirlpool India Whirlpool was established in 1911 as first commercial manufacturer of motorized washers to the current market position of being world's number one manufacturer and marketer of major home appliances. The parent company is headquartered at Benton Harbor, Michigan, USA with a global presence in over 170 countries and manufacturing operation in 13 countries with 11 major brand names such as Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. Today, Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25 per cent. The company owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune. LG India LG Electronics was established on October 1, 1958 (As a private Company) and in 1959, LGE started manufacturing radios, operating 77 subsidiaries around the world with over 72,000 employees worldwide it is one of the major giants in the consumer durable domain worldwide. The company has as many as 27 R & D centers and 5 design centers. Its global leading products include residential air conditioners, DVD players, CDMA handsets, home theatre systems and optical storage systems. Godrej India Godrej India was established in 1897, the Company was incorporated with limited liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is one of the largest privately-held diversified industrial corporations in India. The Company has a network of 38 Company-owned Retail Stores, more than 2,200 Wholesale Dealers, and more than 18,000 Retail Outlets. The Company has Representative Offices in Sharjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi Arabia) and Guangzhou (China-PRC). Sony India Sony Corporation, Japan, established its India operations in November 1994. In India, Sony has its distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive outlets and 21 direct branch locations. The company also has presence across the country with 21 company owned and 172 authorized service centres. Hitachi India

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Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and sells a wide range of products ranging from Power and Industrial Systems, Industrial Components & Equipment, Air Conditioning & Refrigeration Equipment to International Procurement of software, materials and components. Some of HILs product range includes Semiconductors and Display Components. It also supports the sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards and DVD Camcorders.

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