Consumer Durables: Ghalla Bhansali Stock Brokers Pvt. LTD

Ghalla Bhansali Stock Brokers Pvt. Ltd.
21st April, 2010
Consumer Durables
The Indian consumer durables industry has witnessed a considerable
change in the past couple of years. Changing lifestyle, higher disposable income
coupled with greater affordability and a surge in advertising has been
instrumental in bringing about a sea change in the consumer behavior pattern.
This industry consists of durable goods used for domestic purposes such
as televisions, washing machines, refrigerators, microwave ovens, mobile phones
etc. The growth in the consumer durables sector has been driven primarily by
factors such as the boom in the real estate & housing industry, higher disposable
income, emergence of the retail industry in a big way coupled with rising
affluence levels of a considerable section of the population.
As per a survey conducted by FICCI on the Indian consumer durables
industry, a shift in consumer preferences towards higher‐end, technologically
advanced branded products has been quite discernable. This shift can be
explained by narrowing differentials between the prices of branded and
unbranded products added with the high quality of after sales service provided
by the branded players. The shift has also been triggered by the availability of
foreign branded products in India owing to lower import duties coupled with
other liberal measures as introduced by the government.

The Indian consumer durables industry can be segmented into three key
groups

White goods Kitchen appliances/brown goods Consumer electronics
Refrigerators Grinders Mobile phones
Washing machines Microwave ovens Televisions
Air conditioners Irons MP3 players
Speakers Electric fans DVD players
audio equipment Cooking range VCD players
Chimneys
www.ghallabhansali.com 1
21st April, 2010
Growth accelerates
The demand for consumer durables is rising with increase in credit
availability at finer rates and change in the lifestyle of the people
Indian consumer durable sector is witnessing medium term recovery from
1.05% fall in FY 2007‐08 to 4.5% increase in FY 2008‐09, which has given way for
impressive 25.5% rise in April‐Feb 2010. Infact, the sector witnessed single digit /
negative growth in most of the months of FY 2007‐08 and reported double digit
growth in only two months (July and September 2008) in FY 2008‐09. As against
this, the sector reported double digit growth in all the 11 months of April to
February 2010 of the current fiscal. Whatʹs more, the sector is consistently
witnessing above 20% growth in each of the 8 months from July to February
2010.
The consumer durables index recorded 29.89% growth in February 2010
compared with 5.78% increase in the same month last year. Due to the crisis last
year we have seen fall in demand which resulted in nominal 4.50% growth for
the year 2008‐09. However till February 2010 the index recorded 25.50% growth
rate compared with 5.78% growth in April‐October 2008‐09.

Trends in Index of Consumer Durables Production
2009 ‐ 10 2008 ‐ 09 2007 ‐ 08
Month
Index % Chg. Index % Chg. Index % Chg.
Apr 415 17.60 352.9 3.25 341.8 2.4
May 442.5 13.17 391 2.81 380.3 ‐0.65
Jun 435 16.19 374.4 4.61 357.9 ‐3.56
Jul 489.1 22.12 400.5 13.94 351.5 ‐2.66
Aug 491.8 24.66 394.5 3.9 379.7 ‐6.15
Sep 553.5 24.13 445.9 14.66 388.9 ‐7.27
Oct 509.7 19.99 424.8 ‐1.64 431.9 8.96
Nov 510.1 38.05 369.5 0.3 368.4 ‐5.51
Dec 494.5 45.91 338.9 ‐4.18 353.7 2.79
Jan 514.9 31.59 391.3 2.06 383.4 ‐0.54
Feb 536.3 29.89 412.9 5.98 389.6 3.1
Mar n.a. na 442.9 8.45 408.4 ‐2.04
LQ. Oct ‐ Oct 504.76 18.82 424.8 ‐1.64 431.9 8.96
YTD. Apr ‐ Feb 490.21 25.50 390.6 5.78 376 ‐1.39
FY. Apr ‐ Mar n.a. n.a. 395 4.5 378 ‐1.05
Index = 100 in 1993‐94;
n.a. = Not available / not applicable;
Source: Central Statistical Organization
21st April, 2010
Key consumer durables‐share by value
30%
34%
5%
18%
13%
Colour TVs Re frige ra tors Air Conditione rs W a shing Ma chine Othe rs
Growth of Consumer Electronics Production in India
450,000 35
400,000 28.9 28.3

30
25.9
350,000 24.9
21.2 25
300,000
250,000 20
200,000 15
10.4
150,000
10
100,000
5
50,000
0 0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Production Rs. Cr Growth %

Strong growth in production of alarm time pieces, A.C. single phase house
service meters, electric fans, bicycles, passenger cars, motor cycles, refrigerators,
two wheeler tyres, Television Receivers, metallic utencils, giant tyres, scooters
and mopeds, Washing / laundry machines etc powered the consumer durable
index. Over 45% of the weight of the consumer durable sector is for automobiles,
tractors, bicycles and tyres and tubes thereof. Accordingly, the strong growth in
the auto sector has powered the consumer durable sector.
21st April, 2010
BSE SENSEX v/s BSE CD (YTD returns chart)
BSE CD
BSE SENSEX
The key growth drivers for the Indian consumer durables industry:
o Rise in disposable income: The demand for consumer electronics has been
rising with the increase in disposable income coupled with more and more
consumers falling under the double income families. The growing Indian
middle class is an attraction for companies who are out there to woo them.
o Availability of newer variants of a product: Consumers are spoilt for
choice when it comes to choosing products. Newer variants of a product
will help a company in getting the attention of consumers who look for
innovation in products.
o Product pricing: The consumer durables industry is highly price sensitive,
making price the determining factor in increasing volumes, at least for
lower range consumers. For middle and upper range consumers, it is the
brand name, technology and product features that are important.
o Availability of financing schemes: Availability of credit and the structure
of the loan determine the affordability of the product. Sale of a particular
product is determined by the cost of credit as much as the flexibility of the
scheme.
o Innovative advertising and brand promotion: Sales promotion measures
such as discounts, free gifts and exchange offers help a company in
distinguishing itself from others.
o Festive season sales: Demand for colour TVs usually pick up during the
festive seasons. As a result most companies come out with offers during
this period to cash in on the festive mood. This period will continue to be
the growth driver for consumer durable companies.
21st April, 2010
Major hurdles and challenges plaguing the Indian consumer durables sector:
o Threat from new entrants, especially global companies: The domestic
consumer durables sector faces threat from newer companies, especially
from global ones who have technologically advanced products to offer.
o Rivalry and competition: Presence of a large number of players in the
domestic consumer durables industry leads to competition and rivalry
among companies. Threat from rivalry and competition poses a threat to
domestic companies.
o Potential markets remaining yet untapped: A large segment of the
domestic market, mostly the rural market is yet to be tapped. Tapping this
yet untapped and unorganised market is a major challenge for the Indian
consumer durables sector.
o Threat from substitute products/services: The domestic consumer
durables industry is plagued by threats from substitute products. Easy
accessibility to theatres/multiplexes, especially in urban areas has turned
off the viewership from TV to a large extent. With the advent of a horde of
FM radio stations, radio sets have now substituted TVs.
o Customer power with respect to availability of choice: The availability of
a wide product line on account of most products being homogeneous,
poses a threat for companies operating in the consumer durables sector.
Customers have the choice of both domestically produced and imported
goods, with similar features.
Conclusion
The supply side constraint has lead to sharp rally in agri commodity
prices. So, though the rural income on 1999‐2000 prices have inched up by only
1.7% in the first half of the current fiscal, the cash flows of the rural income have
improved at a brisker pace during this period, thanks to better credit flows,
dispersion of income with increase in wage levels etc. Add to this, the increase in
the wages, and payment of arrears, to Central Government employees, which is
also being followed through by increases in Central PSUs, State Governments etc.
Meanwhile, the appreciation of rupee, and the lower excise duties besides range
bound costs of key inputs like steel, polymers etc have helped spur demand, as
consumer durables are highly price elastic. Price elasticity refers to higher pace of
increase in demand for every fall in prices. Slew of new product launches, series
of festive offers and low interest regime together have only added cream to the
growth in demand.
So, on an overall basis, the consumer durable segment is on strong footing
for delivering double‐digit growth in FY 2009‐10 after mere 4.5% growth in FY
2008‐09 and 1.05% fall in FY 2007‐08.
21st April, 2010
Company Prospects:
¾ Titan Industries
Titan Industries is the worldʹs fifth largest and Indiaʹs leading
manufacturer of watches. The company has manufactured more than a 100
million watches till date; and has a customer base of over 80 million. The
umbrella brand Titan is one of Indiaʹs leading watch brands that brought about a
paradigm shift in the Indian watch market, offering quartz technology with
international styling.
Today, the Titan portfolio has over 60% of the domestic market share in the
organised watch market. The company has 247 exclusive showrooms christened
World of Titanʹ, making it amongst the largest chains in its category backed by
700 after−sales−service centers. The company has a world−class design studio that
constantly invents new trends in wrist watches.
o Titan plans to add around 50,000 sq ft p.a. in its jewellery business in
FY2011, implying around 15‐20 % space growth. This will be led by a
combination of large and small format stores.
o Similarly, in the watches division, along with expansion with multi‐
format stores, the company plans to add around 30‐40 new “World of
Titan” stores in FY2011 translating into 12% space growth in the
watches division.
o Fast Track, the branded chain of retail stores of Titan Industries with
products of watch, sunglasses, bags and belts etc has plans for adding
50 new stores by April 2010. The proposed small format stores will
have carpet area of 400‐600 Sq Ft each with a capex of Rs 40‐50 lakh.
Currently Fast Track currently has 13 stores offering in house designed
products. The company eyes on major pie of the total branded
accessories which was pegged at Rs 22500 crore with growth rate of
25%. Going ahead, the company expects revenues from fast track to
grow by 25% to Rs 360 crore for FY10.
Quarter Ended Quarter Ended
Particulars
Dec. 2009 Dec. 2008 % Var. Sep. 2009 Sep. 2008 % Var.
Sales 1333.6 1023.81 30 1146.8 1088.53 5
OPM % 8.06 5.8 39 9.43 11.61 ‐19
PBDT 107.39 48.9 120 106.26 121.79 ‐13
PBT 98.28 41.01 140 97.36 113.93 ‐15
NP 75.43 12.6 499 77.6 87.82 ‐12
21st April, 2010
¾ Videocon Industries Ltd
An Indian multinational company, which involved in the key sectors of
Consumer Durables, Display & Color Picture Tube, CRT Glass, Oil & Gas is
named as Videocon Industries Limited. The Company was incorporated in 4th
September of the year 1986 as Adhigam Trading Private Limited for the business
of trading in paper tubes. For manufacture the products under the Videocon, the
company have 8 plants situated in Tq‐ Paithan, Bhalgaon, Bangalore, Hosur,
Kolkata, Maheshwaram Mand and Bharuch.
To strengthen and maintain & its leadership status, the Videocon group
has clearly charted out its course for the future. Aggressive development is in full
swing at the R & D Centres to bring out state‐of‐the‐art technologies including
True Flat, Slim, Extra Slim, Plasma & LCDs, at the earliest. In the Oil & Gas
business, having all the basic operator capabilities of a prospecting entity, the
group is looking to add more explorations and production depth as also oil‐
bearing assets. The group will also get into gas distribution in India significantly.
o Videocon Industries is planning for manufacturing LCD panels and
also LCD and flat televisions with inbuilt DTH set top boxes in its
Taratola factory. However, the company plans to convert its Kolkatta
manufacturing facility at Taratola into a hub for its D2H satellite TV in
a long run. With a capex of Rs 120 crore, the company plans to roll out
with 20,000 to 30,000 television sets with inbuilt set top box from this
factory.
o Videocon Industries signed a five‐year agreement with Philips
Electronics NV to make and sell the century‐old Philips brand
televisions in India.
o Videocon is a new entrant to Direct to Home services (DTH). It has
partnered with Irdeto for a modular Scalable Conditional access system
and they have partnered with Tech Mahindra in IT space and IBM for
technology support.
Particulars
Sales 2806.56 2074.67 35 2621.24 2626.02 0
OPM % 17.43 18.71 ‐7 19 20.38 ‐7
PBDT 323.38 244.58 32 343.9 429.65 ‐20
PBT 184.17 106.56 73 204.26 305.76 ‐33
NP 131.67 60.43 118 149.26 175.53 ‐15
21st April, 2010
¾ Blue Star Ltd
Blue Star is Indiaʹs largest central airconditioning company with an annual
turnover of Rs 2574 crores, a network of 29 offices, 5 modern manufacturing
facilities, 700 dealers and around 2600 employees.
Blue Star has business alliances with world renowned technology leaders such
as Rheem Mfg Co, USA; Hitachi, Japan; Eaton ‐ Williams, UK; Thales e‐Security
Ltd., UK; Jeol, Japan and many others, to offer superior products and solutions to
customers. The Company has manufacturing facilities at Thane, Dadra, Bharuch,
Himachal and Wada which use state‐of‐the‐art manufacturing equipment to
ensure that the products have consistent quality and reliability.
o Blue Star primarily focuses on the corporate and commercial markets.
These include institutional, industrial and government organizations as
well as commercial establishments such as showrooms, restaurants,
banks, hospitals, theatres, shopping malls and boutiques.
o Blue Star has tied up with Italy‐based Fruit Control to offer a gas‐based
emission system, which is said to bring wastage to near zero.
o Blue Star has managed a higher margin both at the operating and net
profit levels when compared with Voltas in FY‐09. Blue Star’s operating
margin was 10.8 per cent (9.3 per cent for Voltas) and PAT margin 7 per
cent ( 6.2 per cent for Voltas).
o The company has several big corporate clients which place repeated
orders. At Rs 1,815 crore, the company’s order book stands at 17 per
cent higher than the previous year.
o Blue Star is also eyeing further off‐take from government‐related infra
spends (such as the stadiums for Common Wealth Games) to boost its
sales in the coming quarters. The company already has the Delhi Metro
Rail Corporation and Tamil Nadu State Assembly’s orders on hand.
Particulars
Sales 593.07 565.82 5 563.04 645.63 ‐13
OPM % 9.51 9.22 3 11.54 10.69 8
PBDT 55.78 47.02 19 66.99 65.76 2
PBT 47.03 40.02 18 58.32 59.63 ‐2
NP 42.33 32.19 32 49.44 44.95 10
21st April, 2010
¾ Whirlpool of India Limited
Whirlpool of India Ltd is a leading manufacturer of home appliances. The
company is primarily engaged in manufacturing and trading of Refrigerators,
Washing Machines, Air Conditioners, Microwave Ovens and small appliances
and caters to both domestic and international markets. They also provide services
in the area of product development, information technology, accounting and
procurement services to Whirlpool Corporation, USA and other group
companies.
The company owns three state‐of‐the‐art manufacturing facilities at
Faridabad, Pondicherry and Pune. Each of these manufacturing set‐ups features
an infrastructure that is witness of Whirlpoolʹs commitment to consumer interests
and advanced technology. The company exports their product to Russia and East
European countries and exports small appliances to the USA under the Kitchen
Aid brand.
o Net profit of Whirlpool of India rose 133.86% to Rs 16.16 crore in the
quarter ended December 2009 as against Rs 6.91 crore during the
previous quarter ended December 2008. Sales rose 24.02% to Rs 570.82
crore in the quarter ended December 2009 as against Rs 460.25 crore
during the previous quarter ended December 2008.
Particulars
Sales 570.82 460.25 24 539.92 387.92 39
OPM % 5.71 4.71 21 9.75 4.21 132
PBDT 35.95 19.84 81 56.13 14.07 299
PBT 26.9 10.05 168 44.63 4.91 809
NP 16.16 6.91 134 24.93 1.74 1333

21st April, 2010
Mahesh Babaria
maheshb@ghallabhansali.com
Mittal Chheda
mittald@ghallabhansali.com
Disclaimer:‐
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Ghalla Bhansali Stock Brokers Pvt. Ltd.

21st April, 2010

Refrigerators Grinders Mobile phones

Washing machines Microwave ovens Televisions

Air conditioners Irons MP3 players

Speakers Electric fans DVD players

audio equipment Cooking range VCD players

Colour TVs Re frige ra tors Air Conditione rs W a shing Ma chine Othe rs

400,000 28.9 28.3

Production Rs. Cr Growth %

Sales 593.07 565.82 5 563.04 645.63 ‐13

OPM % 9.51 9.22 3 11.54 10.69 8

PBDT 55.78 47.02 19 66.99 65.76 2

PBT 47.03 40.02 18 58.32 59.63 ‐2

NP 42.33 32.19 32 49.44 44.95 10

Sales 570.82 460.25 24 539.92 387.92 39

OPM % 5.71 4.71 21 9.75 4.21 132

PBDT 35.95 19.84 81 56.13 14.07 299

PBT 26.9 10.05 168 44.63 4.91 809

NP 16.16 6.91 134 24.93 1.74 1333

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