ICRA Consumer Durables-200502

Consumer Durables
ICRA
ICRA Sector Analysis

CONSUMER DURABLES
February 2005
Industry Comment
Report by ICRA Information, Grading and Research Service Page 1 of 63

www.icraindia.com
Consumer Durables
Contacts:
Vineet Nigam Asst. General Manager
Rajeev Thakur Research Head
Amul Gogna Executive Director
Date February 2005
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Consumer Durables
TABLE OF CONTENTS
OVERVIEW ...................................................................................................................................4
MARKET SIZE AND SEGMENTATION .............................................................................4
INDUSTRY STRUCTURE ................................................................................................4
MARKET CHARACTERISTICS—DEMAND .....................................................................12
MARKET CHARACTERISTICS—PENETRATION LEVELS ...............................................20
MARKET CHARACTERISTICS—SEASONAL AND CYCLICAL NATURE OF DEMAND ........27
PLAYERS .....................................................................................................................................30
PLAYER TYPES AND OUTLINES OF PLAYERS ..............................................................30
MARKET SHARES AND RANKING ................................................................................31
GROWTH TRENDS....................................................................................................................40
B&W TVS ..................................................................................................................40
CTVS .........................................................................................................................41
RACS .........................................................................................................................42
REFRIGERATORS ........................................................................................................44
WASHING MACHINES .................................................................................................46
CRITICAL ISSUES .....................................................................................................................47
INCREASED BARGAINING POWER OF BUYERS ............................................................47
PERSISTING INFRASTRUCTURAL BOTTLENECKS .........................................................48
SENSITIVE TO GOVERNMENT POLICIES......................................................................48
LIMITED THREAT OF IMPORTS ...................................................................................49
POLICY FRAMEWORK ...........................................................................................................50
EXCISE DUTIES ..........................................................................................................50
CUSTOMS DUTIES ......................................................................................................51
INFORMATION TECHNOLOGY AGREEMENT ................................................................51
QUANTITATIVE RESTRICTIONS ...................................................................................52
MONTREAL PROTOCOL ...............................................................................................52
FINANCIAL PERFORMANCE.................................................................................................53
RACS .........................................................................................................................53
WHITE GOODS ...........................................................................................................54
CONSUMER ELECTRONICS .........................................................................................57
KEY SUCCESS FACTORS ........................................................................................................60

Consumer Durables
OVERVIEW
Market Size an d Segmen tation
Segments
The consumer durables (CDs) sector for the purpose of this report include
Televisions or TVs (including colour televisions or CTVs, and black & white
televisions or B&W TVs); white goods (refrigerators and washing machines); and
room airconditioners or RACs.
Market Size and Segmentation

The Indian TV industry has a size of around Rs. 91 billion, comprising CTV market
of Rs. 85 billion, and B&W TV market of Rs. 6 billion. In terms of volumes, while the
CTV market was estimated at 8.25 million units during calendar year (CY) 20031,
the B&W TV market was estimated at 2.4 million units during CY2003. The B&W
TV market, consisting mainly of 14-inch models, caters primarily to low-income
households. The market had begun to shrink in the early 1990s, but revived
temporarily with an exemption from excise granted by the Government in 1994.
However, since the mid-1990s, overall B&W TV sales have started dropping again.
The reimposition of the 4% excise duty on B&W TVs in the Union Budget for 2001-
02, and the increase in excise duty to 8% in the Union Budget for 2002-03, and to
16% in the Union Budget for 2004-05 is likely to hasten the shrinkage of this
market.
After CTVs, refrigerators constitute the second largest product segment within the
Indian CD sector in India, with an estimated annual turnover of Rs. 35 billion
during FY2004 comprising estimated sales of 3.7 million. The size of the RAC
industry in India during CY2003 is estimated at 0.98 million in volume terms, and
Rs. 22 billion in value terms. Washing machines sales in India aggregated an
estimated 1.37 million during FY2004 or around Rs. 11 billion in value terms.
Industry S tructu re
Televisions
The television industry started in India in 1970 with the production of B&W TV
sets. The initial TVs were all 20-inch (or 51-cm) sets. For 13 years, this was the
only size offered in the B&W TV market, till 14-inch TVs were launched in 1984.
During the 1970s, the B&W TV market (viz., 20-inch B&W TVs) grew at a
compounded annual growth rate (CAGR) of over 38%. At end-1979, the B&W TV
stock in the country was 1.19 million, which translated into a penetration level of
14 per 1,000 population. The Government policy on B&W TVs in the initial period
was characterised by licensing of manufacturing units for capacity in excess of
10,000 per annum and encouragement to the small sector industry (SSI) sector to
1 Throughout the report, CY means calendar year from January-December. Financial Year (FY) means financial
year from April-March. Thus, FY2004 means the period April 2003-March 2004. Market size and value estimates
for consumer durables are for CY or FY (depending on data availability).

Consumer Durables
set up production facilities with capacities in the range of 2,500-5,000 per annum.
While, at the outset, expansion of these units up to 20,000 numbers per annum
was allowed, in the mid-1970s, there was a freeze on the further approval of
capacity expansions. There was also a restriction on the import of foreign
technology, and the local technology provided by the Central Electronics
Engineering Research Institute (CEERI), Pilani, had to be adopted by
manufacturers. From 1982, the Government relaxed the restrictions to some
extent. The year 1983 saw the removal of restriction on capacity expansions and of
the ceiling on capacity to be licensed, although the restrictions on foreign
technology continued.
A notable development was the launch of the 14-inch B&W TVs in 1984, which
evoked an even better response from the market, especially since they were
affordable for households in the lower economic strata, in both rural and urban
areas. In the first five years, the 14-inch market grew at a CAGR of more than
72%. The advent of the 14-inch product, coupled with the advent of CTVs in 1982
sounded the death knell for the 20-inch B&W TV. From the late 1980s, the growth
in the B&W TV market was fuelled mainly by the growth in the 14-inch segment.
The birth of CTV in India can be traced to the Asian Games (ASIAD) held in New
Delhi in 1982. After the Asiad, Doordarshan Kendras (state-owned TV production
and transmission stations) were set up in many parts of the country. The euphoria
over cricket following India's victory in the World Cup in 1983 and in the Benson
& Hedges cricket championship in Australia in 1985 provided a great impetus to
CTV demand. The Government encouraged this sector, and various State
Governments came up with their own TV companies like Uptron, Keltron and
Meltron. Older players in the B&W TV market, like Weston, Dyanora and
Televista, also diversified into CTVs. By 1989, there were around 200 players in
the market.
Unlike in the case of B&W TVs, the Government realised the importance of
economies of scale and stipulated a minimum investment level for CTVs. However,
as in the case of B&W TVs, it was mandatory to adopt the technology of CEERI
even for CTVs. The industry accepted the condition but started importing kits
(except for the wooden cabinet) from abroad. However, because of the absence of
domestic capacity in colour picture tubes (CPTs), TVs were highly import-sensitive
items and entailed a huge foreign exchange outgo every year. The Government
tried to compensate for this by raising the excise duties. This led to an all-round
increase in the cost of production, which when transferred to consumers, resulted
in a drop in demand. Thus, after the initial growth phase in the late 1980s, there
was a brief lull. The early 1990s, therefore, saw many TV companies closing shop.
The second phase of CTV growth came on the heels of the 1991-initiated economic
liberalisation programme, after which there was a reduction in both excise and
custom duties. Simultaneously, with the opening up of Indian skies to foreign
satellite channels in 1991-92 and the coming of cable TV, the demand for TVs grew
further. This was also the period when private and more aggressive domestic
players like Videocon, BPL and Mirc Electronics consolidated their presence in the
CTV market through their focus on both product promotion and technology—the

Consumer Durables
latter through collaborations with international bigwigs (BPL with Sanyo, Japan;
Mirc Electronics with JVC, Japan; and Videocon with National, Japan).
Since the mid-1990s, the Indian TV market has witnessed the entry of global
brands like Akai, Aiwa, LG, Panasonic, Sansui, Samsung, Sony, Thomson, and
Toshiba. At present, while LG and Samsung operate through fully-controlled
Indian operations, the Akai, Sansui and Toshiba brands are marketed by Videocon
(Akai was initially with Baron International, and later sold to Videocon). Aiwa is
now a subsidiary of Sony. Many multinationals such as Sony, LG, Samsung, and
Matsushita entered on their own and quickly captured the imagination of the
market with innovations in product quality and features.
During the early 1990s, inspite of the onslaught of CTVs, the B&W TV market
grew from a level of 3.4 million in CY1992 to 6 million in CY1997, at a CAGR of
12%. Although the 1990s started off with the market showing signs of shrinking,
the demand was reinvigorated from 1994 onwards, mainly because of the
exemption of excise duty on B&W TVs. The excise exemption was provided by the
Government considering the enormous utility of the B&W TV as an affordable
educational tool for rural households; besides, the B&W TV also provided
informational support on agricultural issues and helped spread awareness on
issues like literacy and family planning. Although during the 1990s, the growth of
CTVs was more prominent, the heterogeneity in the Indian society—with a
sizeable section of the population in the lower to lower middle income strata—
ensured that B&W TVs also grew alongside. However, from 1998, the annual
demand has started shrinking.
Trends in TV Market in India

Million units
CTV
12 B&W TV
10
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Compiled by INGRES
Although the shrinking demand is attributable to a larger number of middle

income households going in for first purchase of CTVs (or second hand CTVs)
rather than B&W TVs, an important demand deterrent has been the increase in
the excise on B&W TVs and B&W picture tubes. The Union Budget for FY2002
imposed a 4% excise duty on B&W TVs, which was increased to 8% in the Union

Consumer Durables
Budget for FY2003, and to 16% in the Union Budget for FY2005. However, looking
at the household ownership and penetration levels, it may be inferred that the
potential for B&W TVs has still not died down, especially among lower income
households. Overall, B&W TVs are likely to have a customer base in the rural
areas of the country.
Air Conditioners
Taking the cooling capacity required and the nature of cooling application as the
bases, the Indian airconditioner (AC) industry can be divided into the following
segments:
Room ACs or RACs cater to relatively low cooling requirements, ranging from 0.75
tonne (T) to 4T, typically in households and small offices. RACs can again be
divided into window ACs and split ACs, on the basis of the mounting principle.
Windows ACs are single, compact units, which are mounted onto windows. Owing
to the ease of assembling these ACs, a large portion of the windows AC market is
catered to by small, unbranded, local assemblers. Split ACs are named as such
because the condenser portion and the compressor are mounted separately, and
connected to each other through a coil. With split ACs, the noise level is less since
the noise-making condenser portion is taken out. These are also used for
intermediate rooms, which do not have any windows. Often, users would not like
their windows to be blocked. Moreover, split ACs suit end-users looking for greater
aesthetics, especially in small one-room offices and in larger shops and commercial
establishments. Split ACs are further sub-divided into wall-mounted, floor-
mounted and ceiling-mounted splits. Because of the higher level of technology
involved in split ACs as compared with window ACs for the same tonnage
requirements, the prices of split ACs are higher while the presence of the
unbranded sector is minimal.
Packaged ACs cater to higher cooling requirements of 5-15T, and generally find use
in office buildings, hotels and large restaurants and cinema theatres, where it
would be uneconomical to install separate window or split units for different
rooms. The design and manufacture of these ACs involve a much higher degree of
technical finesse vis-à-vis window ACs. Packaged ACs are thus made by the
organised sector. In packaged ACs, the return air from the grilles in the
conditioned space enters the ceiling plenum or the return duct and is drawn into
the unitary packaged unit. It is then mixed with the outdoor air, and the mixture
is cooled and dehumidified at the DX-coil, when cooling is required. The
conditioned air is then distributed to the conditioned space through the supply
duct and ceiling diffusers. The packaged AC systems cater to refrigeration
requirements in the range of 5 to 15T.
Central ACs: Unlike RACs or packaged ACs, which are unitary systems, in a central
air conditioning system there is a central cooling (or heating) plant. Depending on
the type of refrigeration used, central ACs can be categorised into vapour
compression systems and vapour absorption systems. Vapour compression systems
work on the vapour compression cycle, where the refrigerant undergoes a cycle of
evaporation at very low temperatures, compression, heat rejection through

Consumer Durables
condensation at higher temperature, and adiabatic expansion. These are

electricity-driven systems and account for around 84% of the total central AC
market. These are further classified into:
! Reciprocating direct expansion systems (10T to 120T)
! Screw chillers (40T to 560T)
! Centrifugal chillers (200T to 1,000T)
Vapour absorption systems are driven by heat energy, and can be indirect-fired or
direct-fired. They cater to refrigeration requirements from 40T to 1,650T. Indirect-
fired systems are those where waste heat is available from some adjacent source.
In India, these make up for almost 90% of the market. Direct-fired systems derive
their heat from a separate source such as oil or gas. These systems can be single-
stage or double-stage units. The commonly used refrigerants are water and lithium
bromide. While the initial investment in absorption systems is more than in
compression systems, the running costs are lesser in the case of the former,
because power consumption is only 5-6% as in the compression systems.
The segment of ACs which comes under the ambit of CDs is the RAC segment. The
size of the domestic RAC market is estimated at 980,000 units as of CY2003. RACs
can be further categorised into window ACs and split ACs. During CY2003, while
sales of window ACs aggregated 721,600 units (73.6% of the market for RACs),
sales of split ACs aggregated 258,400 units (26.4% of the market for RACs).
Traditionally, the demand of RACs had been low in India, because of three major
factors. As compared with water coolers, RACs were perceived of as luxury items.
RACs also have substantially higher electricity consumption, and the low
disposable income in India has made them more expensive to operate than water
coolers. Finally, the high incidence of duty put them out of reach of most ordinary
households. This also led to the predominance of the unorganised sector, which
was able to provide ACs at much cheaper prices. With the decrease in excise duties
over the last decade as well as the increase in household incomes, the overall
affordability levels have gone up, especially in urban households. RACs are thus
no longer seen as luxury items.
Segmentation of RAC Market in India
CY2003 CY2000
Split Split
26.4% 19.1%
W indow W indow
73.6% 80.9%
Source: TV Veopar Journal

Consumer Durables
On the supply side, the RAC market has witnessing intense competition since the
late-1990s, following the entry of multinationals like LG, Samsung, National; and,
very recently, Electrolux, Whirlpool, Daikin, Fujitsu, and Haier.
R e f ri g e r a t o r s
The refrigerator market in India can be broadly segmented on the basis of the
cooling system into:
! Direct Cool (DC); and
! Frost Free (FF).
In DC refrigerators, refrigeration is accomplished through the direct contact of air

with the cooling coils bound around the freezer. So, ice is formed frequently around
the cooling coil, reducing cooling efficiency and calling for constant defrosting.
Also, temperature distribution is uneven within the fridge. Within the DC
category, there are two sub-categories—automatic defrost and manual defrost. In
an auto defrost fridge, an internal heater melts the frost and evaporates the water
after the compressor has run for a fixed period of time. In a manual defrost fridge,
the frost that is formed around the cooling coils has to be scraped out manually.
Alternatively, the refrigerator has to be switched off for sometime.
FF refrigerators operate on a principle called forced convection. In these models, the

cooling coils are located outside the storage area. A circulation fan sucks cold air
from over the coils and blows it into the refrigerator and freezer sections, thus
preventing frost formation inside the refrigerator and ensuring high cooling
efficiency. A frost-free freezer has three basic parts: timer, heating coil, and a
temperature sensor. The timer turns on the heating coil, which melts the ice off
the freezer coils. When all of the ice is gone, the temperature sensor senses the
temperature rising above a specified temperature, and turns off the heater.
Segmentation of Refrigerator Market in India
FY2004 FY2001
FF FF
19.8% 17.0%
DC DC
80.2% 83.0%
The size of the domestic refrigerator market is estimated at 3.7million units

during FY2004, of which around 80% is accounted for by the DC segment, and the
balance by the FF segment. The bulk of the refrigerator demand comes from the
medium size market in both the DC and FF categories. In the Indian refrigerator
market, traditionally, the 165L is the most popular size, mainly because it has

Consumer Durables
proved to be the optimal size for the average Indian home. Sales upto 184L in the
DC segment account for an estimated 79% of total sales in the DC segment. The
next larger segment—185-225L—accounts for 16% of total sales in the DC
segment. Thus, refrigerator size of up to 225L accounted for around 95% of the
total refrigerator sales in the DC segment. In the FF segment, while the segment
upto 225L accounts for 27% of sales, the next larger segment—226-270L—accounts
for 46%. FF refrigerators upto 300L account for around 87% of the total FF
refrigerator market in India. However, the market is moving towards higher
capacity FF refrigerators, with sales of 300L and above constituting 13% of FF
sales during FY2004.
While most developed countries have completely replaced DC refrigerators with

FF ones, in India, DC refrigerators still account for around 80% of the market.
This is because of their significantly lower prices as compared with FF
refrigerators, and the fact that FF products were introduced only during the 1990s.
However, of late, with declining prices, the FF segment has been growing more
rapidly than the DC segment. Sales in the DC segment increased from 2.6 million
units in CY1998 to 2.97 million units in FY2004. Over the same period, sales in
the FF segment increased from 0.37 million units to 0.73 million units. The share
of the FF segment has increased from 12% during CY1998 to 17.8% during
FY2003, and to 19.8% during FY2004.
W a s h i n g M a c h i ne s
On the basis of the level of convenience provided, washing machines can be
broadly segmented into three kinds: washers, semi-automatic (SA) and fully
automatic (FA).
Segmentation of Washing Machines Market
Segment Washers Semi-automatic (SA) Fully automatic (FA)

Main feature These are single-tub These are machines where the two sets of These are essentially
machines, which actions—one, soaking, washing, and single-tub machines
only wash clothes, rinsing, and the other, drying—are not wherein the soaking,
but do not dry them. continuous, and require manual washing, rinsing and
interference. Normally, there are two drying operations are
tubs—one performing the first set of performed in a single
actions, and another the second (such tub. However, FA
machines are also called twin-tub machines require a
machines). The wash load has to be continuous stream of
manually transferred from the first tub to water.
the second. However, since the twin tub
arrangement occupies a lot of space,
nowadays, some companies have launched
single-tub SA machines, where the two
sets of actions are performed in sequence
in the same tub.
Market size NA 1,035,000 326,000
(units per
annum)*
*FY2004 figures
Compiled by INGRES
Washing machines can also be segmented on the basis of the mode of loading
clothes into top-loading and front-loading machines. In top-loading machines, the

Consumer Durables
washing load is added from the top, whereas in front-loading ones, clothes are
loaded from the front. In top-loading machines, the load is put in a tub where the
cleaning takes place either through an agitator action or a pulsator action. In the
former, the wash load is mechanically cleaned by the rotation of agitator blades
around an axis, by twisting and rubbing the parts of the load against one another.
In the latter, the rotation of a pulsator creates turbulence in the water, which pulls
the dirt and stains out of the fabric. The pulsator action generates air bubbles,
which penetrate clothes and burst, thus generating pulse energy. Because of the
lesser friction between clothes and also between clothes and the blades, the risk of
damage to the fabric is much lesser in the pulsator mode than in the agitator
mode. In top-loading machines—both the agitator and pulsator types—generally
the blades rotate around a vertical axis; hence top-loading machines are also
known as V-axis washing machines. Top-loading machines can be SA or FA. In SA
machines, generally, two tubs are required, one for washing and another for
drying. However, of late, in view of the larger space taken up by the twin-tub
arrangement, some companies like Samsung have come up with single tub SA
machines. The single-tub SA machines market has been declining over the past
few years, because of declining prices of twin-tub SA washing machines.
Front-loading machines employ a rotating drum, which rotates, once clockwise and
then anticlockwise, leading to a "tumbling" action on the clothes. The effect on
clothes is gentler than in the case of top-loading machines, as the tumbling action
minimises the wear and tear involved. Since the machines generally involve
rotation of the drum about a horizontal axis, these are also known as H-axis
washing machines.
Global Experience
The preference for top- or front-loading machine has been different in different
markets. While in the US, top-loading machines have been more popular, in
Europe, more of front-loading machines have been used. In the US and Japan, less
than 5% of washing machines in domestic use are front-loading. By contrast,
nearly 98% of washing machines in use by households in Europe are front-loading.
However, with an increasing realisation of the greater efficiencies of front-loading
machines, the situation is changing. Since 1997, when the major US players
launched new front-loading models, there has been a growth in the market for H-
axis washing machines in the US.
As in the US, in India too, traditionally, top-loading models have accounted for
bulk of the market. Videocon had triggered off the market with top-loading
machines, since these were cheaper. Because of the Indian audience being highly
price sensitive, the followers also had to toe the same line. For many years, IFB
Limited was the only player offering front-loading FA models. Later on, other
players like EKL, Siemens, Whirlpool, and LG entered the sub-segment with their
models. H-axis models are gradually creating a niche for themselves. At present,
most of the players have come out with at least one front-loading model to address
the niche segment.
The size of the domestic washing machine market is estimated at 1.36 million
units per annum during FY2004, including 1.04 million units of SA machines, and
0.33 million units of FA machines. As discussed above, based on the axis of

Consumer Durables
rotation of the moving parts, FA machines can be categorised into vertical axis (V-
axis) top loading washing machines and horizontal axis (H-axis) front loading
washing machines. While front-loading machines consume less power and water,
their higher acquisition prices have traditionally dissuaded the market from
propelling the demand for these machines. However, of late, the demand is picking
up with more and more players offering front loaders.
Market Ch aracteristics—Demand
The Indian consumer market is a variegated one, not only in terms of the
disparate income and affordability levels, but also lifestyles and socio-cultural
backgrounds, which makes the same product have different levels of value
ascribed to it by different households. The diversity is also augmented by the
different levels at which the infrastructural imperatives required for the operation
and enjoyment of the services of durables are available to different households.
The most important infrastructural pre-requisite is electricity, which is essential
for the operation of most of consumer appliances. The lack of power supply (in
terms of regularity and quality, i.e., voltage fluctuation) in most areas in the
countryside is one of the major factors inhibiting the growth of these markets. A
corollary is the skewness of demand towards urban areas observed in the case of
many durables. In addition to the disparity in the levels of affordability between
urban and rural areas (attributed especially to the disparity in industrial and
agrarian growth levels), the lack of rural demand can also be traced to
infrastructural bottlenecks. The situation is unlikely to change in the near future,
since the rise in affordability levels (as already evident) is expected to be more
pronounced among urban households than rural households.
The penetration of CDs goods in India is very low as compared with the rates
achieved in developed countries because of the low affordability levels here and
certain infrastructural bottlenecks. In terms of sheer numbers, there is, therefore,
a reasonable potential market for all durable items. An added aspect observed
during the last few years has been the launch of many new durable products, and
within each product, improved product versions, even when the household
penetration of the older products has been far from complete. Because of the vast
heterogeneity of the market, there is potential for the co-existence of all the
product versions—the inferior and the superior, the inexpensive and the dearer.
D e m a n d C h a r a c te r i s t i c s— T e l e v i si o n s
The demand for B&W TVs in India can be divided into three segments on the basis
of screen size: 14", 17" and 20".

Consumer Durables
Size-wise segmentation of the B&W TV Market—CY2003
20"
17" 0.7%
4.9%
14"
94.4%
The small size 14" segment accounted for an estimated 94.4% of the B&W market
during CY2003, as compared with 92.5% during CY2002, and 88.6% during
CY2001. The market for the bigger sizes has shrunk over the years, following the
narrowing down of price differentials between 20" B&W TVs and 14" CTVs. The
share of 20” has declined from 1.1% during CY2001 to 0.7% during CY2003.
After its inception in 1970, over the decade, B&W TV production (i.e., of the 20"
TV) grew at a CAGR of 38%. However, with the launch of the 14" B&W TVs in
1984, besides the coming up of CTVs in 1982, the growth of the 20-inch B&W TV
category was affected adversely. The richer households, who could afford the 20"
B&W TV, graduated to CTVs, while the poorer sections settled for the 14" models.
The 1990s were marked by a rapid decline in the 20” B&W TV segment, which was
replaced by an intermediate 17” segment. Currently, the demand for B&W TVs is
declining because of the increasing preference for CTVs and the development of a
big second-hand CTV market. A good brand of B&W TV (20”) which can support
cable channel is now available at Rs. 3,000, while an average 14” CTV is now
available at a price as low as Rs. 4,000. Second-hand CTVs are available for Rs.
3,000-4,000 per set. Thus, the market for bigger size B&W TVs of 17” and 20” is
shrinking and these segments could well be wiped out in the next two to three
years.
In India, since the very large CTV segment (size > 29 inches) is a small one, the
demand can be segmented into three broad categories:
! Small (14"/16")
! Medium (20"/21")
! Large (25"and bigger)
With a market share of 77% in CY2003, the medium size segment (20"/21")
constitutes the bulk of the market. However, of late, the large TV segment has
grown at the expense of the medium segment.

Consumer Durables
Segment-wise Demand Growth Trend in Domestic CTV Market

millions
9
Large Screen
8 20"/21"
7 14"
6
5
4
3
2
1
0
FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 CY2000 CY2001 CY2002 CY2003
Compiled by INGRES
The Western and Southern regions of the country have higher CTV penetration
levels compared with the national average; the Northern and Eastern zones have
lower figures than the average. In terms of annual CTV demand, historically, the
bulk of the purchases have been in the West and the South, while the North and
the East have lagged.
Trends in Region-wise Share of CTV Purchases
North South East W est

1.0
0.8
0.6
0.4
0.2
0.0
FY1986 FY1990 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
Compiled by INGRES
The CTV penetration levels across different States indicates that the Northern
region is characterised by a disparity in penetration amongst the States included.
Although Delhi leads the States in CTV penetration, its lower total population
lends a small weight to the Northern zone, while Uttar Pradesh, the State with the
largest population, has a much greater weight. Among the Southern and Western
States, the penetration is more equitably distributed. As in the case of most
consumer assets, the penetration is also skewed towards urban areas.

Consumer Durables
Penetration of CTVs—Across Population Centres

percentage
60 57.1
50
45.1
40
33.4
30
22.9
20
10
5.0
Rural Areas
Top 7 metros
0.1-1 mn
0
mn+metros
cities
Other 1
Towns
Compiled by INGRES
RACs
The Indian RAC segment is dominated by the household segment, which
accounted for 58.6% of total demand during CY2003. The commercial segment,
comprising offices and business establishments, accounted for 41.4% of total RAC
sales during CY2002. While the share of household sector increased from 56.5%
during CY2002, the share of commercial segment declined from 43.5%. As is to be
expected, the household segment dominates demand for window ACs, with 66% of
demand for window ACs during CY2003. However, the household segment
accounted for only 38% of the demand for split ACs during CY2003. The
commercial segment has a growing presence in the RAC market, because of
increased demand from segments such as banking, restaurants, etc.
Traditionally, 1.5T capacity models have accounted for bulk of the demand for
RACs in Indian households, since the size has been found to be optimal. In 1995,
1.5T models accounted for 80% of the domestic demand for RACs. However, the
figure came down to 70% in CY1998, and is likely to have further dropped to 60%
by CY2003, with the demand for higher capacity splits (3-4T) picking up. However,
in the windows AC segment, as of CY2003, the 1.5T still accounted for around 75-
78% of the total market. The Indian RAC market is also moving towards rotary
compressors, which presently account for around 50% of the market. Rotary
compressors are mostly imported from countries like China, Korea, Japan,
Thailand, and Malaysia. Japanese companies such as Hitachi, Matsushita,
Toshiba, Mitsubishi, and Sanyo are the major suppliers of compressors.
By geographical regions, North India has accounted for the greatest proportion of
RAC sales, followed by the West. While North India accounted for 37.5% of RAC
sales during CY2003, West India accounted for 27.3%. This is because of the
higher summer temperatures in the Northern parts; the Southern (25.8% of RAC
sales during CY2003) and Eastern regions (9.5% of RAC sales during CY2003)
experience a maritime climate because of their proximity to the sea. The skew

Consumer Durables
towards the North can also be attributed to the relatively higher affordability
levels there, especially in the three States of Punjab, Haryana and Delhi.
Trends in Region-wise Distribution of RAC Demand—CY2003
Window AC
Split AC
North North
West
38.0% West 36.0%
27.0%
28.0%
East
East
10.0%
8.0%
South South
25.0% 28.0%
Among States, Delhi accounts for the largest share for all ACs with around 35% of
the country's market. The other States, in order of market size, are Maharashtra,
Tamil Nadu, Punjab, and Andhra Pradesh.
The demand for ACs is characterised by a concentration in the urban areas, with
the contribution of the rural areas at only 6%. Among urban areas, the market is
skewed more towards the top seven metros and other large cities. Inadequate
infrastructure (especially power supply), lower incomes, and lack of aggressive
marketing are amongst the major reasons for the lower demand for ACs in other
regions.
Of late, there has been a shift in the demand for ACs from the commercial and
institutional segment to the household segment. Till the late 1990s, the sales to
offices and commercial establishments accounted for around 80% of the RAC
market. The demand from the household segment was low on account of the
significant price differential between branded RACs and those produced by the
unorganised sector. However, with the reduction in excise rates in the late 1990s,
the demand from the household sector took off. An important factor was the
sprouting of the small-office home-office (SOHO) segment, with many people
opening offices within their homes.
In India, sales in the DC segment increased from 2.6 million units in CY1998 to
2.97 million units in FY2004. Over the same period, sales in the FF segment
increased from 0.37 million units to 0.73 million units. The share of the FF
segment has increased from 12% during CY1998 to 17.8% during FY2003, and to
19.8% during FY2004.

Consumer Durables
Geographically, the overall demand distribution for refrigerators in India has

shown the largest demand from the North, which accounted for 36% of the demand
in FY2004. The South and West accounted for 26% and 25.8%, respectively, while
the East accounted for only 12.2% of the total domestic demand for refrigerators in
FY2004.
In terms of segment-wise distribution, DC refrigerator sales are concentrated more

in North and West India, while the West and South India account for the greater
proportion of the FF market. Presently, the North accounts for only 20% of FF
sales, as compared with 40% for DC sales. By comparison, the West and the South
account for 37% and 30% of FF sales, respectively, as against 23% and 25% of DC
sales, respectively. The higher market share of the West and the South in FF sales
is partly attributable to the progressive nature of the market in these regions.
Geographic Distribution of Refrigerator (DC and FF) Sales during FY2004

W est DC FF
23.0% North
North 20.0%
40.0%
W est
East 37.0%
12.0%
South
South 30.0%
25.0%
East
13.0%
In the Indian refrigerator market, traditionally, the 165L is the most popular size,
mainly because it has proved to be the optimal size for the average Indian home.
Sales upto 184L in the DC segment account for an estimated 79% of total sales in
the DC segment. The next larger segment—185-225L—accounts for 16% of total
sales in the DC segment. Thus, refrigerator size of up to 225L accounted for
around 95% of the total refrigerator sales in the DC segment. In the FF segment,
while the segment upto 225L accounts for 27% of sales, the next larger segment—
226-270L—accounts for 46%. FF refrigerators upto 300L account for around 87% of
the total FF refrigerator market in India. However, the market is moving towards
higher capacity FF refrigerators, with sales of 300L and above constituting 13% of
FF sales during FY2004.
The size of the refrigerator purchased depends on, among other things, the size of
the family and its shopping habits. A thumb rule is that a refrigerator should
ideally be big enough to accommodate five days' perishables, including vegetables,
fruits, meat and dairy products, for a household. Typically, a family of two would
require a refrigerator of 160-200 litres, and for every incremental member, another
20-30 litres could be further added. In the DC segment, the small size segment
(less than 100L) finds use in hotel suites, bars and dispensaries.

Consumer Durables
The geographical distribution of the washing machine market in India is given
below.
Region-wise distribution of washing machine sales during FY2004

West
24.1% North
44.9%
East
9.0%
South
22.0%
Geographically, the market for washing machines is not distributed uniformly,

with nearly 69% of the demand coming from the North and the West. The South
accounts for 22% of the total demand, and the Eastern region for a mere 9%.
The distribution for the sub-segments indicates that sales of SA washing machines
is higher in the Northern region while sales of FA washing machines are higher in
the Southern and Western regions.
Geographic Distribution of Washing Machine Sales during FY2004
West SA FA
20% North
13%
East
9% West
North 37%
55%
South
South 41%
16%
East
9%
Among States, Maharashtra accounts for the largest share for all washing
machines with an estimated 20% of the country's market, followed by Delhi, Tamil
Nadu, Uttar Pradesh and Punjab.

Consumer Durables
State-wise Distribution of Washing Machine Sales—percentage
20
15
10
Kerala
AP
MP
Rajasthan
Maharashtra
Delhi
Karnataka
TN
UP
Gujarat
Haryana
Punjab
West Bengal
In the FA category, Maharashtra accounts for as much as 30% of the market,

followed by Tamil Nadu, which has a 15% share. In the SA category, however,
Maharashtra's share is lower at 20%, while Delhi follows with a share of 15%.
The washing machines demand is characterised by a concentration in the urban

areas, with the contribution of the rural areas at only 10%. Among urban areas,
the market is skewed more towards the top seven metros and other large cities.
Distribution of Washing Machines Sales according to Population Centres
Rural Areas
Towns 10% Top 7 Metros
12%
38%
0.1 to 1 mn Other 1 mn +
cities cities
26% 14%
In the FA washing machines segment, the top seven metros account for 47% of the
market. The other cities with population in excess of 0.1 million each account to
39% altogether. In the SA washing machines segment, the metros' share is 35%,
while the other cities (excluding towns) together account for 41%. In the washer
sub-segment, the contribution of the rural areas is higher, and that of the metros
less. The bulk of the demand comes from cities with population between 0.1 and 1
million.

Consumer Durables
Distribution of Washing Machine Sales according to Population Centres
Rural
SA FA
Rural Areas
Towns
Areas 4%
10%
12% Top 7
Towns
Metros Top 7
12%
35% Metros
0.1 to 1 47%
mn cities
24% Other 1
Other 1
0.1 to 1 mn +
mn +
mn cities cities
cities
27% 15%
14%
Compiled by INGRES
Washing machines are generally differentiated in terms of the capacity of the

machine or the quantity of clothes that can be cleaned in a single wash. The
capacity is denoted in terms of kilograms (kgs) and is generally indicated by the
quantity of dry clothes that can be contained in the washing machine tub. The
choice of the capacity usually depends on the daily wash load requirement of a
particular household. For a small family of two or three people with not more than
two or three kilos of linen every day, the capacity required would be between 3.5
and 5 kgs. Big families might require larger machines. The washing habits of a
household are also an important consideration. Households, which do not wash
their clothes on a daily basis, but only once or twice a week, would need larger
washing machines.
Market Ch aracteristics—Pen etration Levels

The penetration level for CDs in India and across states is a function of various
factors. Penetration is higher in urban areas than in rural areas. Lower rural
penetration can be attributed to lower income levels and affordability; lack of
infrastructure facilities, and differences in lifestyle. However, notwithstanding the
higher level of penetration in urban areas, the rural market has grown
significantly during the last decade.
On the whole, the household penetration of most CDs is low in India. In FY1999
(the latest year for which detailed penetration rates are available), it was
estimated that while 28% of Indian households had B&W TVs, only 12% had
CTVs. The penetration of other CDs was even lower: washing machines at 5.5%,
Compact Disc (CD) Players at 2.3%, and personal computers at 0.7%.
B &W T V s
The figures for penetration of B&W TVs have been estimated by the National
Council of Applied Economic Research (NCAER) till 1998-99. According to the
data, in the 10 years from 1985-86 to 1995-96, the penetration of B&W TVs rose
more than five times from a level of 47 per 1,000 households to 240 per 1,000

Consumer Durables
households, at a CAGR of 17.6%. Penetration levels increased to 281 in FY1998,

before declining to 280 in FY1999.
Overall Penetration of B&W TVs

per 1,000 househo
300 281.1 279.7
261.6
250 240.0
222.1
201.7
200 171.6
150 124.7
100
47.6
50
0
FY1986 FY1990 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
Source: Compiled by INGRES from NCAER Data
More recent data from the 2001 Census indicates that an estimated 60.65 million
households in India owned a TV, representing a penetration of 31.6%. However,
penetration in urban areas was higher at 64.3%, as compared with a penetration of
18.9% in rural areas.
According to the NCAER data, while penetration for urban households increased
from 88.4 per 1,000 households in 1985-86 to 490.3 in 1998-99, penetration for
rural households increased from 9.6 to 195.47. The growth was higher for rural
households because of a lower base to start with, and also because with the advent
of CTVs and the large-scale replacement of B&W TVs by CTVs, a lot of the B&W
TVs in urban areas found their way into rural and semi-urban areas.
Penetration of B&W TVs in India—Urban and Rural

Per 1,000 households
250 Urban Rural

203.3 195.5
200 185.3 184.5 184.7 181.6 177.5 172.4
154.8
150 132.9 178.8
114.5
100
50
0
FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
As can be seen from the above figure, while penetration in urban areas has been
declining since the mid-1990s, penetration in rural areas has been declining since
the late-1990s. The decline in B&W TV penetration has been accompanied by a
significant increase in penetration of CTV among Indian households.

Consumer Durables
The important point is the low penetration levels in the low and lower middle
income group (as of FY1999, around 14.7% and 38.1%, respectively). Penetration of
B&W TVs in the upper-middle income and high-income households has been
declining since the mid-1990s, as a higher number of these households go in for
direct purchase of CTVs. Unlike many other CDs, penetration of B&W TVs among
upper-middle and high-income households is lower than for middle-income
households. Conversely, penetration of CTVs among upper-middle and high-
income households is higher than for middle-income households, indicating a
substitution effect of CTVs related with incomes. Those in the lower, lower middle
and part of the middle income households would still view a CTV purchase as an
upgrade over a B&W TV. Industry estimates indicate that there would still be a
potential market for B&W TVs of around 40 million households, amongst the
estimated 195 million households in India.
Penetration of B&W TVs in India by income category

FY1994 FY1997
500
FY1998 FY1999
400
300
200
100
0
Low Incom e LowerM iddle M iddle Incom e UpperM iddle High Incom e
Incom e Incom e
CTVs
According to NCAER estimates, the penetration levels of CTVs in Indian
households grew from a level of 12.2 per 1000 households in FY1986 to 121.4 per
1000 households in FY1999 (nearly 10 times in 13 years).
Penetration of CTVs in India
140 per 1,000 househo 121.4

120 102.8
100 88.4
78.9
71.4
80 62.7
55.2
60 41.3
40
12.2
20
0

Consumer Durables
While the urban penetration level of CTVs per 1,000 households increased from
40.4 in FY1986 to 303.8 in FY1999, the corresponding figure for rural penetration
grew from 1.3 to 48.41. While the urban penetration levels have grown 7.5 times in
13 years, the rural penetration levels have multiplied more than 37 times in the
same period, because of a low base to start with.
Penetration of CTVs in India—urban and rural
per 1,000 househo

350
303.8
300
265.0
250
211.8 214.3
197.1
200 178.1
150
100
38.3 48.4
50 19.3 23.0 26.4 30.9
0
FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
The penetration level for CDs in India and across states is a function of various
factors. Lower rural penetration can be attributed to lower income levels and
affordability; lack of infrastructure facilities, and differences in lifestyle. However,
notwithstanding the higher level of penetration in urban areas, the rural market
has grown significantly during the last decade. The rural market accounted for
around 36.7% of purchases of CTVs in FY1999, as compared with 11% during
FY1986, and 30.9% during FY1993.
Share of Rural Households in Purchases of CTVs in India
40% 36.7%
34.7%
35% 31.1% 30.9% 31.7% 31.7%
28.8%
30%
25%
19.0%
20%
15% 11.0%
10%
5%
0%
The high growth of the Indian CTV market during the last decade is primarily
attributable to a significant increase in middle- and high- income households, and
a decline in lower income households. Between FY1994 and FY1999, while the
number of low income households declined at a CAGR of 14.1% (mainly because of
a shift towards higher-income households), the number of middle income

Consumer Durables
households increased at a CAGR of 35.8%. The number of high-income households

also increased at a CAGR of 58.4%. While the percentage of households in the low-
income category declined from 57.4% in FY1994 to 39.7% in FY1999, the
percentage of upper middle- and high income households increased from 6.5% to
11.9%. As can be seen below, compared with lower- and lower-middle income
households, the middle- and high- income households have a significantly higher
penetration of CTVs. During FY1999, around 56.1% of high-income households
had a refrigerator, as compared with 44.8% for upper-middle income, 24.1% for
middle-income, 6.7% for lower middle-income, and 1.2% for low-income
households.
Penetration of CTVs in India by income category

Low Incom e LowerM iddle Incom e

M iddle Incom e UpperM iddle Incom e
600 High Incom e
500
400
300
200
100
0
FY1994 FY1997 FY1998 FY1999

ACs
Detailed penetration rates and growth for the AC market in India are not
available.
According to the NCAER, the penetration of refrigerators in Indian households
increased from a level of 69.47 per 1,000 households in FY1994 to 120.37 per 1,000
households in FY1999 (the latest year for which data is available).
Penetration of Refrigerators in India
140 per 1,000 househo

120.4
120 107.7
100 96.6
86.1
78.0
80 69.5
62.1
60
45.0
40
26.2
20
0

Consumer Durables
While the urban penetration level of refrigerators per 1,000 households increased
from 150.7 in FY1986 to 335 in FY1999, the corresponding figure for rural
penetration grew from 3.3 to 20.4.
Penetration of Refrigerators in India—urban and rural
per 1,000 househo 335.0

350
305.2
300 278.1
252.3
250 236.2
216.7
200
150
100
50 24.5 29.1 34.6
14.1 17.0 20.4
0
FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
The rural market accounted for around 28.2% of purchases of refrigerators in

FY1999, as compared with 14% during FY1986, and 18.1% during FY1993.
The high growth of the Indian refrigerator market during the last decade is
primarily attributable to a significant increase in middle- and high- income
households, and a decline in lower income households. As can be seen below,
compared with lower- and lower-middle income households, the middle- and high-
income households have a significantly higher penetration of refrigerators. During
FY1999, around 56.9% of high-income households had a refrigerator, as compared
with 47.6% for upper-middle income, 23.9% for middle-income, 6.2% for lower
middle-income, and 0.9% for low-income households.
Penetration of Refrigerators in India by income category


600 High Incom e
500
400
300
200
100
0
FY1994 FY1997 FY1998 FY1999

Consumer Durables
According to the NCAER, the penetration of washing machines in Indian
households increased from a level of 23 per 1,000 households in FY1994 to 54.6 per
1,000 households in 1998-99. Inspite of the lower cost of washing machines as
compared with refrigerators, the penetration of washing machines is lower,
because of lower perceived utility of the washing machines, and lower labour costs.
Penetration of Washing Machines in India
60 per 1,000 househo 54.6

48.0
50 41.1
40 34.5
29.1
30 23.0
18.1
20
8.9
10 4.1
0
The growth in overall penetration was driven by the growth in urban areas, where
the penetration level (per 1,000 households) rose from 13.9 in 1985-86 to 109 in
1993-94, and to 166.8 in FY1999. However, the penetration in rural areas
increased to a mere 5 till FY1996, and to 9.8 in FY1999. The rural market
accounted for around 17% of purchases of washing machines in FY1999, as
compared with 12% during FY1986, and 10% during FY1993.
Penetration of Washing machines in India—urban and rural
per 1,000 househo

200
166.8
148.4
150
128.3
109.0
100 94.2
76.4
50
2.8 4.0 5.0 6.5 8.0 9.8

0
FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
The high growth of the Indian washing machine market during the last decade is
primarily attributable to a significant increase in middle- and high- income
households, and a decline in lower income households. As can be seen below,
compared with lower- and lower-middle income households, the middle- and high-

Consumer Durables
income households have a significantly higher penetration of washing machines.

During FY1999, around 39.5% of high-income households had a washing machine,
as compared with 22.5% for upper-middle income, 8.2% for middle-income, 1.7%
for lower middle-income, and 0.22% for low-income households.
Penetration of Washing Machines in India by income category


400 High Incom e
350
300
250
200
150
100
50
0
FY1994 FY1997 FY1998 FY1999
Market Ch aracteristics—Season al and Cyclical Nature of Demand
Televisions
The demand in the Indian TV market is both seasonal and cyclical. In a year, peak
demand for TVs is in the festival months of October-November. In addition,
sporting events such as cricket and football World Cups, Olympic Games, etc also
result in a significant increase in sales. For example, around 19.5% of the 7.44
million CTVs sold during FY2003 were during the festival months of October-
November. The Cricket World Cup during February-March 2003 resulted in
estimated CTV sales of 2.11 million during January-March 2003, accounting for
28.4% of CTV sales during FY2003. During FY2004, an estimated 25.1% of
demand was during the festival months of September-October 2003 (festival
months coincide with the Diwali Festival, which occurs during mid-October to mid-
November based on the lunar calendar). The months of February-March 2004
accounted for around 19% of demand, caused by increased sales during the India-
Pakistan cricket series.

Consumer Durables
Trends in Sales of CTVs

Thousand units
1,200
1,000 Festival Season

Cricket World Cup
800
Football World Cup
600
400
200
0
Jun-01
Jun-02
Jun-03
Jun-04
Oct-01
Oct-02
Oct-03
Apr-01
Aug-01
Dec-01
Feb-02
Apr-02
Aug-02
Dec-02
Feb-03
Apr-03
Aug-03
Dec-03
Feb-04
Apr-04
Aug-04
Compiled by INGRES
The TV industry also displays cyclicality since new demand stagnates once the
pent-up demand is satisfied. The demand also picks up significantly because of
increased promotional activity coinciding with major sporting events, such as
football and cricket World Cups.
CTV production is also seasonal with manufacturers adjusting their production to

account for the seasonal variations in demand.
RACs
Because of the seasonality of demand in the RAC business, nearly 50% of annual
RAC sales in India take place in the months of March-May.
W h i t e G o o d s ( R ef r i g e r a t o r s a n d W a s h i n g M a c h i ne s )
The white goods market is seasonal with the bulk of the sales and production
taking place during the summer months, and the festival seasons of October-
November. For example, the pattern of demand for refrigerators in India is
presented in the following figure. Refrigerator sales occur mostly in the pre-
summer months of March, April and May, and drop through the summer months
up to September.
The Indian CD industry also displays cyclicality since new demand stagnates once
the pent-up demand is satisfied. The demand picks up again because of
replacement demand and entry of new consumers into the market. For example,
the delicensing of investment in durable goods and the decontrol of imports of
parts for the same, led to a boom in investment and production of CDs,
culminating in a 25.8% growth in Index of Industrial Production (IIP) for CDs in
FY1996. However, the sector grew at only 4.6% during FY1997, indicating that a
significant proportion of pent-up demand had been met. The production picked up
again during FY2000-02 before declining during FY2003 reflecting weak demand,
especially rural demand. However, production picked up during CY2003/FY2004

Consumer Durables
because of major sporting events and increased promotional activities. IIP of CDs
increased 12% during FY2004, as compared with a decline of 6.3% during FY2003.
Growth in Index of Industrial Production (IIP) for CDs

1993-94=100
FY 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
IIP-CDs 116.2 146.2 152.9 164.9 174.1 198.7 227.6 253.7 237.8 265.3
Growth 16.2% 25.8% 4.6% 7.8% 5.6% 14.1% 14.5% 11.5% -6.3% 12.0%
Source: Compiled by INGRES from Reserve Bank of India (RBI) data
Since CDs are also luxury goods, demand is also impacted by economic growth.
With low per capita incomes in India, CDs exhibit high income and price elasticity
due to their high costs, and long service lives. In many economies, it has been
observed that consumer spending shares of housing and CDs typically drop
sharply before and during recessions. Thus, demand for CDs slowed down in India
during 2001-02 because of an economic slowdown and natural calamities.
However, sales of CDs increased during 2003 because of the prolonged summer,
economic recovery, and increased promotional activities during the football and
cricket World Cups.
Month-wise growth in IIP for CDs (April 1996 to September 2004)
30%
25%
20%
15%
10%
5%
0%
Apr-96
Aug-96
Dec-96
Apr-97
Aug-97
Dec-97
Apr-98
Aug-98
Dec-98
Apr-99
Aug-99
Dec-99
Apr-00
Aug-00
Dec-00
Apr-01
Aug-01
Dec-01
Apr-02
Aug-02
Dec-02
Apr-03
Aug-03
Dec-03
Apr-04
Aug-04
-5%
-10%
-15%
-20%
-25%
Source: Compiled by INGRES from Reserve Bank of India (RBI) data

Consumer Durables
PLAYERS
Player Typ es and O utlines o f Players

The Indian CD industry consists of players of domestic origin (like BPL, Videocon,
Mirc,) as well as multinationals operating (like Sony, LG, Samsung, Philips,
Matsushita). The major players in the various sub-segments are detailed below:
Major Players in the Indian CDs Industry
CTV Refrigerators Washing RACs B&W TVs

Machines
Aiwa BPL BPL Blue Star Videocon
Akai Daewoo Electrolux Carrier Onida
BPL Electrolux Godrej Daikin Shriram BPL
Daewoo Godrej IFB ETA General Oscar
LG LG Kenstar Hitachi T-Series
Onida Samsung LG Kenstar Unorganised Sector
Oscar Videocon National LG
Panasonic Whirlpool Onida National
Philips Voltas Samsung Samsung
Samsung Haier Siemens Videocon
Sansui Videocon Voltas
Sharp Voltas Whirlpool
Sony Whirlpool Haier
Thomson Haier Unorganised Sector
Toshiba
Videocon
Beltek
Haier
Compiled by INGRES
The entry of multinationals was facilitated in the 1990s with the Government of
India (GoI) embarking on a phased deregulation of the CDs sector. Of late, the
multinationals have gained a sizeable presence in the Indian CDs market at the
cost of domestic players. In fact, in many areas, the multinationals have even
dislodged the entrenched domestic players from leadership positions. Even though
sales volume have shown a long-term growth, there continues to be overcapacity as
production is outstripping the growth in demand.
The decline in market share of the existing players of Indian origin was because
they had large sunk costs in pre-existing product lines which could have reduced
their flexibility to compete against well-financed multinationals who had
sufficiently higher-quality differentiated products, and the financial resources to
undertake an extensive advertising and promotional campaign. By capturing the
market for higher-end differentiated products, the multinationals targeted to
compete for the whole market and even further extend it by offering lower
price/quality ratio than incumbents. This strategy of pricing has become attractive
given the rapid income growth and concentration of that growth at the lower end
of the CD market. As a result of the entry of multinationals since the 1990s, the
Indian CD industry has become highly competitive. A number of brands have
entered the market and the consumer has a wide choice. Because of the

Consumer Durables
intensification of competition, the CD industry has witnessed significant price

erosion over the past few years.
Market S hares and Ranking

B &W T V s
The B&W TV industry in India is characterised by the presence of a sizeable
unorganised sector. With the shrinking of the B&W market, many organised sector
players have moved out of the market. As a result, the share of the organised
sector has increased from 41% during CY2001 to 47% in CY2002, and to 50% in
CY2003. In the organised sector, nearly all brands in the B&W TV segment have
outsourcing of their manufacturing. This has been prompted by shrinking demand,
low margins, and high overhead costs. In the organised sector, the major players
(and their brands) are Mirc Electronics (Onida), BPL Limited (BPL), Videocon
International Limited (Videocon) and Philips India Limited (Philips), and Oscar.
Other players are Salora International Limited (Salora), Crown (Crown), and
Bestavision (Bestavision and Texla). The production of B&W TVs by the major
players is often outsourced from smaller original equipment manufacturers
(OEMs) like PG Group, Sparrow, Sparrow, and Calcom.
The market shares of the various B&W TV brands during CY2002 and CY2003 are
presented below.
B&W TV Market Shares

CY2003 CY2002
Videocon Videocon
19.8% 19.4%
Unorgd.
Unorgd. Onida Sector Onida
Sector 12.6% 46.7% 11.4%
50.0%
BPL Medium BPL

Others 6.7% Segment
Oscar 8.3%
6.1% T-Series 8.3% Philips Oscar
1.5% 3.3% 2.5% 3.3%
Besides the big players in the organised sector as mentioned in the preceding
figure, the other brands in the organised sector are Bestavision, Salora, Texla,
Crown and Beltek.
The structure of the B&W TV industry has undergone substantive changes in

terms of the major players. Till the late 1980s, the major brands in the B&W TV
market were Dyanora, Crown, Uptron, Texla, Solidaire and Weston. While Crown

Consumer Durables
was the market leader in the 14” segment, Dyanora led the market in the 20”
segment. However, over the years, the traditional brands in the B&W TV sector
lost out to the CTV brands like BPL, Videocon, and Onida, who have been able to
capitalise on their brand equity in CTV market and dealer network to increase
sales in the B&W segment.
CTVs
The major brands in the Indian CTV industry are LG, Samsung, BPL, Onida,
Videocon, Onida, Sansui, Sony, Akai, Aiwa, Philips, Panasonic, Sharp, Thomson
and Daewoo. Of late, new brands like Konka and TCL have also entered the
market. The total market size of CTVs in India in CY2003 was 8.25 million units.
The market shares of the various CTV brands (for CY2003 and CY2002) were as
follows:
CTV Market Shares—CY2003 and CY2002
Toshiba CY2003
Beltek CY2002
0.8% Others
1.6% Videocon
9.0% Others
Akai 7.9% Akai
Thomson 4.6% BPL 19.0% Toshiba
0.7% 5.5% BPL
2.7% 6.3% 10.3%
Videocon
8.5% LG
Sony Thomson LG
20.1%
2.3% 2.4% 14.6%
Philips Sony
Sharp
4.6% 3.0% Philips
1.7% Sansui
7.9% Onida 4.6% Onida
Oscar 11.2% Oscar 8.6%
Panasoni SharpSansui
Samsung 2.5%
c 2.0% 6.0% Samsung 3.2%
15.2% 11.3% Panasoni
1.1% c
1.1%
Till the late-1990s, the Indian CTV market was dominated by older players of
domestic origin such as BPL, Videocon, Onida, and Philips. Although the Indian
CTV market still has a significant presence of these players, they are steadily
losing ground to multinational players such as LG and Samsung. BPL, which was
the market leader in CY2001, lost its market leadership position in CY2002 to LG.
BPL’s market share has declined from 22.5% during CY1999 to 10.3% during
CY2002, and to 6.3% during CY2003. Videocon’s market share has declined from
16% in CY1999 to 8.5% during CY2003. Including Akai, Sansui and Toshiba,
Videocon’s market share was an estimated 21.8% during CY2003, as compared
with 20% during CY2002. Onida, whose market share had declined in the mid-
1990s, had reported an increased market share during CY2000 and CY2001,
mainly because of higher sales of all sizes, especially 14”. Onida has presently a
significant presence in the medium screen segment, where it had a market share
of 9.8% during CY2003. Another established player—Philips India Ltd.—also lost

Consumer Durables
market share during CY2000, but increased market share during CY2001. Its
market share remained at 4.6% during CY2002 and CY2003.
As compared with the declining presence of players of domestic origin,

multinationals such as LG and Samsung have managed to increase their market
shares on the strength of aggressive marketing. LG claimed the leadership
position in CY2002, with estimated sales of 1.1 million during CY2002,
representing a growth of 76.5%. LG sold an estimated 1.66 million CTVs during
CY2003. LG’s market share has increased from 7.4% during CY1999 to 14.6%
during CY2002, and an estimated 20.1% during CY2003. On a monthly basis, LG
captured market leadership position during late-2002. LG has a significant
presence in all segments. During CY2002, while it had a market share of 16% in
the medium screen segment, its market share was 13.5% in the large screen
segment, and 10.4% in the small screen segment. Samsung’s market share has
also increased from 8.2% during CY1999 to 11.3% during CY2002, and an
estimated 15.2% during CY2003. Samsung is estimated to have sold an estimated
1.25 million CTVs during CY2003. While Samsung had a market share of 13.3% in
the small screen segment, its market share in the medium- and larger-screen
segment was 15.4% and 21.7%, respectively. Sony, whose strategy has been to be a
value-driven player rather than a volumes-driven one, has also seen further
erosion in its market share. Its market share during CY2003 was estimated at
2.3%, compared with 3.8% during CY2001, and 5% during CY1999.
Volume Growth for Major CTV Brands during CY2003

60%
50%
40%
30%
20%
10%
0%
Onida
Sharp
Sansui
Philips
Akai
Samsung
Oscar
LG
Toshiba
Thomson
BPL
Total
Sony
Panasonic
Videocon
-10%
-20%
-30%
-40%
Compiled by INGRES
ACs
The major players in the RAC segment are LG, Voltas, Carrier Aircon, Hitachi,
Samsung, Blue Star, Fedders Lloyd, National, and General.
Historically, the RAC industry in India has been characterised by the

predominance of the unorganised sector. Because of the high rates of excise duty
on the players in the organised sector, the small assembling units were able to
price their products much lower than the branded players. However, the industry
structure has undergone a gradual change over the years with the reduction in
excise duty and the launch of new models by the branded companies, incorporating

Consumer Durables
a wide range of features and better aesthetic appeal. The proportion of the
unorganised sector in the total RAC market came down from 70% in 1993 to 49%
in 1997, and further to 7% in CY2003. While the unorganised sector has a market
share of 6.9% in the window AC segment, it has a market share of 7.7% in the split
AC segment.
Growth Trend in RAC Sector

thousand units
1000 Unorganised 70
Organised
800 100
600 120
120
911
400 750
175 540
200 170 195 446
175
75 110 130 180
0
CY1993 CY1995 CY1996 CY1997 CY2000 CY2001 CY2002 CY2003
Compiled by INGRES
The market shares of the major players in the RAC segment (based on volumes for
CY2003 and CY2002), are presented in the following figure.
RAC Market Shares-CY2003 and CY2002

Blue Star
Other- CY2003
Unorgd. 2.8% CY2002
Orgd. Carrier Daikin Blue Star
7.1% Other- Unorgd. Carrier
2.3% 9.2% Shriram 2.5%
Orgd. 11.8% 11.8% Daikin
W hirlpool 1.7%
3.5% 2.2%
4.1%
Voltas ETA ETA
10.9% General Voltas
General
12.1%
Hitachi 4.0% 3.9%
Videocon
8.2%
7.6% Videocon
Hitachi
6.0%
National 10.7%
Sam sung Kenstar National
1.5%
9.2% 2.9% Sam sung 2.2%
LG Kenstar
6.5% LG
28.6% 3.3%
23.5%
Within the organised segment, the entry of new multinational players like LG and
Samsung has seen older established players like Carrier losing market share over
the past few years. Before the entry of these new players, Carrier had captured a
large presence in the Indian market riding on its global brand image as the
pioneer in AC technology, differentiating its products only on the basis of cooling
efficiency of its compressors. However, the new entrants came up with products

Consumer Durables
incorporating several other innovative differentiating features and started

aggressively promoting them, leading to Carrier losing its share. Thus, in the year
2000, Carrier lost its leadership to LG. Carrier’s market share has declined from
around 15.9% in CY2000 to 9.2% in CY2003. LG is now the market leader with a
market share of 28.6% during CY2003, as compared with 23.5% during CY2002,
and 15.2% during CY2001. Because of the launch of new brands and intensive
promotions, Voltas has also witnessed an increase in market share from 10.6%
during CY2001 to 10.9% during CY2003. The launch of new range of ACs and the
shift in ownership resulted in Hitachi (formerly Amtrex-Hitachi) increasing its
market share from 8.2% during CY2001 to 10.7% during CY2002. However, its
market share declined to 8.2% during CY2003 because of increased competition.
Window and Split AC market shares—CY2003

Other-
orgd. Blue Star Window Unorgd. Split
Blue Star
ETA
2.0% Unorgd. 2.1% 7.7% 4.6%
General
6.9% Voltas
4.4% Other- Carrier Daikin
W hirlpool Carrier 15.0% 12.4% Shriram
Orgd.
5.5% 8.0% 6.6%
3.3%
Hitachi
Videocon
Voltas 7.7%
5.7%
9.5% ETA
Kenstar Sam sung
Hitachi General
National 2.8% 1.9%
Videocon 9.5% 2.9%
2.0% LG
8.2%
National 27.1%
Sam sung
0.3% Kenstar
11.8% LG
2.9%
29.1%
The major players in the Indian refrigerators industry are LG, Whirlpool, Godrej,
Samsung, Electrolux Kelvinator Limited (EKL), Videocon, and BPL. Recent
entrants in the Indian refrigerators market include Haier of China. The total
industry size was estimated at 3.7 million units during FY2004, consisting of 2.97
million DC units and 0.73 million FF units. The following diagrams mention the
major players in the industry (as a whole and in the different sub-segments) and
their market shares during FY2004 and FY2003.

Consumer Durables
Market Shares in the Overall Refrigerator Market
FY2004 BPL Others FY2003

Voltas Samsung
Whirlpool 4.0% 1.5%
1.2% 5.9%
23.0% BPL Electrolux
1.4% 13.2% Whirlpool
LG
Others 26.7%
Godrej 14.5%
Videocon 0.5%
9.8% 19.7%
Samsung Electrolux
LG Videocon 16.3%
9.1%
22.0% 10.7%
Godrej
20.4%
The past few years have witnessed a stiff competition for leadership in the Indian
refrigerator market, especially among Whirlpool, EKL, Godrej, LG, and Samsung.
During 1998-99, while the erstwhile leader Godrej lost market share and its
leadership position to Whirlpool. However, stiff competition from two major
Korean players—LG and Samsung—resulted in Whirlpool losing market share,
although it still retains its leadership position. While Whirlpool’s market share has
declined from 27.3% in CY2000 to 23% during FY2004, Godrej's market share has
declined from 28.7% during CY1998 to 19.7% during FY2004. Godrej has a strong
presence in the Western regions of the country, where it had a market share of
23.1% during FY2004. By comparison, Godrej had a market share of 20% in South
during FY2004, followed by North (18.1%), and East (16.9%). Amongst the Korean
players, while the market share of LG increased from 5.4% in CY1999 to 22% in
FY2004, the market share of Samsung increased from 3.3% to 9.1% over the same
period. In terms of geographical regions, LG had a market share of 26.2% in the
Northern region during FY2004, followed by West (21.2%), East (19.8%), and
South (18%). After Whirlpool, LG, and Godrej; the brands owned by EKL occupy
the fourth position. However, the share of EKL has declined from 23.6% in CY1999
to 13.2% in FY2004. Over the past few years, the refrigerator market has seen the
influx of Korean brands, who with their innovative product lines and aggressive
promotion campaigns, have managed to take away a sizeable portion of the market
from established players. Thus, the market share of BPL and Videocon has
declined. While BPL’s market share has declined from 7.4% in CY1999 to 1.4% in
FY2004, Videocon’s market share has declined from 13% to 9.8%.
As depicted in the figure below, Whirlpool leads the market in the DC segment,
with Godrej in the second position. LG has increased its market share in recent
years at the expense of the established players. EKL has been pushed down to the
fourth position. The other Korean player—Samsung—has also increased its
market share at the cost of older players like BPL and Videocon.

Consumer Durables
Market Shares in the DC Segment
Voltas FY2004 FY2003

Whirlpool BPL Others
1.5% 1.5%
23.4% 1.8% BPL
Whirlpool
Others 4.0%
26.9%
0.5% Electrolux
Electrolux
15.5% 19.1%
Videocon
10.5% Videocon
10.8%
LG LG
19.6% Godrej 10.8%
20.3% Godrej
Samsung Samsung 21.6%
7.2% 5.0%
During the past three years, there has been a partial demand substitution towards
FF units. In the FF segment, the major players are Whirlpool, LG, Godrej, BPL,
and Samsung. During the past three years, the share of the erstwhile market
leader, BPL has declined—from 31.2% in CY1999 to 1.1% in FY2004. Among the
older players, Godrej’s market share has declined from 20.5% to 17.5%. The older
players have lost share to multinationals. LG is now the market leader in the FF
segment, displacing Whirlpool during FY2003. LG’s market share has increased
from 9.7% in CY1999 to 31.7% in FY2003, and 31.8% during FY2004. In the FF
segment, LG has a market share of 41.9% in the 226-270L segment, 66% in the
271-310L segment, and 26.9% in the over 310L segment. Whirlpool is the second
largest player with a share of 21.4% during FY2004, as compared with 25.7%
during FY2003, and 18.5% in CY1999. Samsung’s market share in the FF segment
has also increased from 5% in CY1999 to 10.3% in FY2003, and 16.4% during
FY2004.
Market Shares in the FF Segment
Whirlpool Others FY2004 FY2003

BPL
21.4% 0.8% Whirlpool
BPL 25.7% 4.2%
Electrolux
Electrolux Godrej Godrej
1.1% 3.2%
4.1% 17.5% 15.0%
Videocon
7.0% Videocon
10.0%
LG
Samsung LG
31.8% Samsung 31.7%
16.4%
10.3%

Consumer Durables
The major brands in the organised washing machines industry are LG, Videocon,
Samsung, Whirlpool, Godrej, and IFB. Other brands include National, Electrolux,
BPL, Daewoo, Siemens and Onida. The figure below depicts the major players in
the overall washing machines sector, and their market shares in FY2004 and
FY2003.
Market Shares in the Overall Washing Machines Market

FY2004 FY2003
Others BPL Electrolux Others BPL Electrolux
2.2% 2.1% 2.0% Godrej 1.6% 2.8% 2.6%
6.3% IFB Godrej IFB
Whirlpool Whirlpool
5.1% 4.4% 3.7%
14.0% 16.0%
Videocon Kenstar
Kenstar 1.9%
16.9%
1.8% Videocon
21.3%
LG
Samsung LG Samsung 25.7%
15.8% 27.3% 14.7%
National
Onida National
Onida 2.9%
3.3% 3.3%
2.2%
The organised washing machines industry consists of players of Indian origin such
as BPL, Videocon, and Onida; as well as multinationals such as LG, Samsung, and
Whirlpool. The multinationals have carved out a sizeable market presence during
the last few years. Since the late 1990s, the market saw a restructuring with the
multinationals eating into the shares of established domestic players.
As can be inferred from the two figures above, established domestic brands like
Videocon and BPL have lost significant market share. During FY2003, LG
captured the market leadership position, displacing Videocon—the erstwhile
market leader. LG’s market share has increased from 10.8% during CY1999 to
27.3% during FY2004. LG has a strong presence in the Northern and Southern
regions. During FY2004, LG had a market share of 29.5% in South India, followed
by 29% in North, 26.4% in East, and 22.4% in West India. Apart from LG,
Samsung has also witnessed a significant increase in market share—from 2.4%
during CY1999 to 15.8% during FY2004. Over the same period, Videocon’s market
share has declined from 30.1% to 16.9%. Whirlpool of India, which is a leading
home appliance manufacturer among western companies in India, has witnessed a
recent decline in market share to LG. Whirlpool’s market share in the Indian
washing machines market has declined from 18.8% during CY1999 to 14% during
FY2004. BPL, which had a significant market presence till the late-1990s, has also
witnessed a steep decline in market share from 14.9% during CY1999 to 2.1%
during FY2004. The established domestic brands have lost market share to
relative newcomers like LG, Samsung, and Whirlpool.

Consumer Durables
In the SA washing machines segment, the industry pioneer Videocon led the
market till FY2002, before losing its leadership position during FY2003. Videocon’s
market share has declined from 34.1% during CY1999 to 19.3% during FY2004,
mainly because of increased competition from Korean players. BPL’s share has
declined from 14.4% in CY1999 to 2.5% in FY2004. During FY2003, LG captured
the market leadership position, displacing Videocon—the erstwhile market leader.
LG’s market share in the SA washing machines market has increased from 11.5%
during CY1999 to 29.6% during FY2004. Among the multinationals, LG's market
share has increased the maximum. Samsung has also recorded sizeable gains, with
its market share increasing from 1.8% in CY1999 to 16.9% in FY2004. The share of
Whirlpool has however declined from 19% during CY1999 to 13.5% during FY2004.
Market Shares in the SA Washing Machines Market

FY2004 FY2003
BPL BPL Electrolux
Electrolux
2.5% 3.6% 3.4%
Whirlpool 2.1% Godrej
Whirlpool Godrej
13.5% 6.8%
16.0% 4.5%
Videocon Others Videocon

19.3% 1.4% 23.6%
LG LG
29.6% 27.4%
Onida Onida
Samsung 4.4% 2.8%
National Samsung
16.9% 3.5% 15.6% National
3.1%
In the FA washing machines segment, the major players are IFB, LG, Whirlpool,
Videocon, and Samsung. The entry of the multinationals has had its effect on this
sector too. As seen from the figures for FY2003 and FY2004, the established
domestic players like BPL and Videocon have lost considerable market share to
the multinationals. IFB, which had lost its market leadership position to LG
during FY2003, regained it during FY2004 through new product launches.
However, IFB’s market share has declined from 22% during CY1999 to 16.7%
during FY2003, before increasing to 21.2% during FY2004. IFB has faced
increased competition and declining market share, mainly because of limited-
product range (front-loading washing machines), increased price promotion, and
the launch of new products by multinationals. IFB markets only front-loading FA
washing machines, and this sub-segment has lost market share to top-loading FA
washing machines. Similarly, the market share of Videocon in FA washing
machines has declined from 13.6% in CY1999 to 9.2% in FY2004. During FY2003,
LG captured the market leadership position, displacing IFB—the erstwhile market
leader. LG has had the most notable impact, with its share rising from a mere
1.7% in CY1998 to 8% in CY1999 and 19.9 in FY2004. Samsung has also recorded
a significant increase in market share—from 4.8% during CY1999 to 12.3% during
FY2004. After LG and IFB, Whirlpool is the third-largest player. However, its

Consumer Durables
market share has declined from 18% in CY1999 to 15.3% in FY2004, mainly
because of reduced sales of front-loading FA washing machines.
Market Shares in the FA Washing Machines Market

FY2004 FY2003
Others Electrolux Godrej
BPL
0.8% 1.7% 4.0%
0.9% Godrej IFB
Whirlpool
Whirlpool 4.9% 16.7%
16.0%
15.3%
Videocon IFB Videocon
Others
9.2% 21.2% 13.3%
2.3%
Siemens Kenstar
Siemens
3.7% National 8.7%
5.0% Samsung
2.8% LG Kenstar 11.7%
LG
19.9% 7.4%
National 20.0%
Samsung
12.3% 2.3%
The front-loading segment within the FA washing machines category was

pioneered in India by IFB, who was followed by Electrolux and Whirlpool, among
others. At present, most of the major players have added at least one front-loading
model each to their product repertoire. Although currently the top-loading
varieties account for 65% of the market for FA washing machine market in India,
market awareness about the benefits of front-loading FA machines is rising. IFB is
the market leader in the front-loading FA category, accounting for nearly 50% of
the sales in this segment.
GROWTH TRENDS
B&W TVs
The B&W TV market in India had a size of around 2.4 million units in CY2003, as
compared with 3.6 million units in CY2002, and 3.8 million units in CY2001. Since
1998, the B&W TV market has started shrinking, owing to the increasing
preference for CTVs and the development of a sizeable second-hand CTV market.
Among Indian households, while ownership of B&W TVs has increased from 26.7
million households in FY1993 to 48.1 million in FY1999, the number of households
owning a CTV increased from 8.6 million to 20.9 million.

Consumer Durables
Trends in Domestic B&W TV Market Size
6 6.0 6.0 5.9 million un

5.2 5.4
5 4.7
4 3.8 3.6
3
2.4
2
0
CY1994 CY1996 CY1997 CY1998 CY1999 CY2000 CY2001 CY2002 CY2003
Compiled by INGRES
During the early 1990s, in spite of the onslaught of CTVs, the B&W TV market
grew from a level of 3.4 million in CY1992 to 6 million in CY1997, at a CAGR of
12%. Although the 1990s started off with the market showing signs of shrinking,
the demand was reinvigorated from 1994 onwards, mainly because of the
exemption of excise duty on B&W TVs. The excise exemption was provided by the
Government considering the enormous utility of the B&W TV as an affordable
educational tool for rural households; besides, the B&W TV also provided
informational support on agricultural issues and helped spread awareness on
issues like literacy and family planning. Although during the 1990s, the growth of
CTVs was more prominent, the heterogeneity in the Indian society—with a
sizeable section of the population in the lower to lower middle income strata—
ensured that B&W TVs also grew alongside. However, from 1998, the annual
demand started shrinking.
CTVs
As discussed earlier, the CTV market in India took off on the heels of certain
sporting events of the 1980s, starting with the Asian Games of 1982. As a result of
such demand drivers and also because of the low base to start with, in the late
1980s, the CTV market witnessed a rapid growth rate. From FY1986 to FY1990,
the offtake of CTVs increased at a CAGR of 19%. From FY1991, however, the
market stagnated for about two years. Because of the high rates of excise duties
passed on to end-users, the initial euphoria got toned down to some extent. In
1993, to push up the sagging growth rate, the Government reduced the excise and
customs rates. But the predominant factor that led to the rejuvenation of the
demand after two years of lull was the advent of cable TV and the arrival of
foreign satellite channels.

Consumer Durables
Growth Trends in Domestic CTV Market

10 Market Size million 45%
9.1
Growth rate %
9 8.3 40%
8 7.6
35%
7
5.8 30%
5.7
6 5.4
25%
5
4.0 20%
4
3.0
15%
3 2.2
1.9 10%
2
1 5%
0 0%
FY1996 FY1997 FY1998 FY1999 FY2000 CY2000 CY2001 CY2002 CY2003 CY2004E
Compiled by INGRES
Post-liberalisation, the CTV market grew very rapidly, riding on the consumerist
boom that was an aggregation of both new and pent-up demand. The CTV market
grew at a CAGR of 32.1% from FY1995 to FY2000. The growth rate had dropped in
FY1997 because of a brief recessionary phase. But during the period FY1997 to
FY2000, aided by factors such as the implementation of the Fifth Pay
Commission's recommendations and the World Cup Cricket, the demand for CTVs
took off again. The CTV market increased 1.1% during CY2001. The slowdown was
because of increased sales during the earlier years, economic slowdown, and
natural calamities. However, the market increased 30.2% during CY2002 to 7.55
million units, mainly because of increased sales during the football World Cup, and
the ICC Cricket trophy in Sri Lanka. The CTV industry sustained the momentum
gained during CY2002, with a growth of 9.3% during CY2003 to 8.25 million units,
mainly because of increased sales during the World Cup and the festival season.
As indicated by the production and sales figures, the CTV sales in India are
expected to grow 9.7% during CY2004 to around 9.1 million units, driven mainly
by growth in sales during the India-Pakistan series, and the Champions Trophy in
England.
RACs
The segment of the air conditioning industry that comes within the ambit of
consumer durables is the RACs segment. The RAC market has grown from a level
of 250,000 units in 1993 to an estimated 980,000 units in CY2003. During 2003,
while sales of window ACs aggregated 721,600 units, sales of split ACs aggregated
258,400. Between 1997 and 2003, the market grew at a compounded annual
growth rate (CAGR) of 18.4%. The penetration level of RACs in 2003 was a mere
0.1% of the total population.

Consumer Durables
Indian AC Market: Trends in Growth
1,000 thousand units 980

900 850
800
700 660
600 566
500 480
400 355
325
300 250 280
200
100
0
CY1993 CY1995 CY1996 CY1997 CY1999 CY2000 CY2001 CY2002 CY2003
Compiled by INGRES
Traditionally, the demand of RACs had been low in India, because of three major
factors. As compared with water coolers, RACs were perceived of as luxury items.
RACs also have substantially higher electricity consumption, and the low
disposable income in India has made them more expensive to operate than water
coolers. Finally, the high incidence of duty put them out of reach of most ordinary
households. This also led to the predominance of the unorganised sector, which
was able to provide ACs at much cheaper prices. With the decrease in excise duties
over the last decade as well as the increase in household incomes, the overall
affordability levels have gone up, especially in urban households. RACs are thus
no longer seen as luxury items.
As discussed above, RACs can be further categorised into window ACs and split
ACs. Market growth in both the window and split AC sub-segment of the RAC
market has been healthy over the last few years. While window AC sales have
increased from 0.57 million during CY2000 to 0.72 million during CY2003, split
AC sales have increased from 0.13 million to 0.26 million. Because of the increased
sales in the split AC segment, the share of window ACs in total RAC sales has
declined from 81% during CY2000 to 74% during CY2003. Split ACs account for
27% of demand for RACs in India, as compared with around 70% in China.
Increasing consumer preference and declining prices is resulting in faster growth
for the split AC segment than the window AC segment. The growing commercial
AC market also offers an attractive opportunity for the split AC segment to grow
further in the future. Software companies, banks and financial institutions,
restaurants, etc are increasingly preferring split ACs.

Consumer Durables
Segmentation of RAC Market in India
CY2003 CY2000
Split Split
26.4% 19.1%
Window Window
73.6% 80.9%
Because of the seasonality of demand in the AC business, nearly 70% of annual AC

sales in India take place in the months of March-May. During 2002, sales
increased because of the extended summer season and deficient rainfall in most
parts of the country. The market sustained the momentum in 2003, with estimated
sales of 0.95 million during CY2003. AC sales increased during 2003 driven by a
reduction in special excise duty (SED) on AC in the Union Budget for 2003-04—
from 16% to 8%. Thus, the overall excise duty (basic plus SED) has been reduced
from 32% during FY2003 to 24% during FY2004. However, sales growth was
slightly lower than expected because of the delayed summer in most parts of the
country and unseasonal rains during the summer season.
RAC sales are expected to register strong growth during CY2004 with sales of
around 1.15 million units. Sales during 2004 have been boosted by the early onset
of summer, resulting in higher than normal sales during February-March.
Refrigerators
The size of the refrigerator market in India was an estimated 3.7 million units
during FY2004. The market size had increased from a volume of 1.1 million in
calendar year (CY) 1992 to 3.2 million in CY2000. However, the market size then
shrunk to 3 million units during FY2002, before recovering during FY2003-04.

Consumer Durables
Indian Refrigerator Market: Trends in Growth
4.0
million units 3.70
3.5 3.38
3.22
2.95 3.07 3.00
3.0
2.5
2.25 2.25
2.0
1.64
1.5 1.39
1.0
0.5
0.0
FY1994 FY1995 FY1996 FY1997 CY1998 CY1999 CY2000 FY2002 FY2003 FY2004
Compiled by INGRES
During the first few years following economic liberalisation—that is, from 1992 to
1996—the market for refrigerators in India nearly doubled in size because of a rise
in disposable income. Thereafter, the market remained stagnant in FY1997,
because of a brief recessionary phase in the economy. In 1998, there was spurt in
demand for refrigerators following the implementation of the recommendations of
the Fifth Pay Commission by the Government. The number of households owning
a refrigerator increased at a compounded annual growth rate (CAGR) of 37.6%—
from 10.93 million in FY1994 to 20.70 million in FY1999. The growth was mainly
because of a significant increase in ownership by middle- to high-income
households. This income segment accounts for around 79% of the total ownership
of refrigerator by households in India. The high income segment alone accounts for
nearly 27% of the ownership of washing machines by Indian households.
Ownership of Refrigerators by Income Category

Millions
Low Income Lower Middle Income

25 Middle Income Upper Middle Income
High Income
20
15
10
0
FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
Source: NCAER
However, over the period 1999-2001, refrigerator sales stagnated at around 3-3.2
million units per annum. Much like the other major sub-segments of the consumer
durables industry, refrigerator sales declined during FY2002, because of an
economic slowdown and natural calamities. However, sales increased during
FY2003 because of the prolonged summer, reduction in prices, and increased

Consumer Durables
promotional activities during the football and cricket World Cups. However, as
indicated by the production figures, the refrigerator market sustained the
momentum picked up during FY2003, and increased 9.6% during FY2004 to 3.7
million units. Strong growth during FY2004 was driven by good monsoons, and
strong economic growth in all segments of the economy. Refrigerator sales are
expected to increase at around 9% during FY2005 to 4.05 million units.
Washing Machines
The total size of the washing machines market in India was estimated at 1.36
million units during FY2004. The market has expanded from the levels of 0.69
million units during FY1996.
Growth in Domestic Washing Machines Market
1,500 thousand units

1,400 1,360 1,361
1,342
1,300 1,275 1,296
1,200 1,160
1,100
1,000 984
900 890
800
740
700 690
600
550
500
FY1994
FY1995
FY1996
FY1997
FY1998
FY2001
FY2002
FY2003
FY2004
CY1998
CY1999
FY: April-March; CY: January-December

Compiled by INGRES
During the first few years following liberalisation—that is, from 1994 to 1998—the
market for washing machines in India more than doubled in size because of a rise
in disposable income. The number of households owning a washing machine
increased at a compounded annual growth rate (CAGR) of 61.1%—from 3.62
million in FY1994 to 9.39 million in FY1999. The growth was mainly because of a
significant increase in ownership by middle- to high-income households. This
income segment accounts for around 88% of the total ownership of washing
machines by households in India. The high income segment alone accounts for
nearly 41% of the ownership of washing machines by Indian households.

Consumer Durables
Ownership of Washing Machines by Income Category

Millions
Low Income Lower Middle Income

10 Middle Income Upper Middle Income
9 High Income
8
7
6
5
4
3
2
1
0
FY1994 FY1995 FY1996 FY1997 FY1998 FY1999
Source: NCAER
Following a period of rapid growth, washing machines sales declined from 1.34
million units during FY2001 to 1.3 million during FY2002, because of an economic
slowdown and natural calamities. However, sales increased during FY2003
because of the prolonged summer, reduction in prices, and increased promotional
activities during the football and cricket World Cups.
As indicated by the production figures for FY2004, the market sustained the
momentum picked up during FY2003. Companies also reported healthy growth in
sales volumes during the festive season (September-October 2003). However,
overall the washing machine market increased only 0.1% during FY2004 to 1.36
million units.
CRITICAL ISSUES
Increased Bargaini ng Power of B uyers

With the intensification of competition in the Indian CD industry, the bargaining
power of the buyer has increased. Consumers have greater access to CDs because
of increased income levels, increased dealer networks of manufacturers, and the
increased presence of financing options. The supply of CD has also increased
because of the entry of various new players. As compared with the early-1990s, a
consumer can bargain more effectively on price and service conditions. As a result
of increased competition, and increased consumer awareness of competing product
and price offers, the CD industry has witnessed significant price erosion. Because
of increased consumer choice, brand loyalty has declined. Brand loyalty in CDs is
generally low because of frequency of purchase and unit cost. For instance, a
consumer buys a CTV only once in several years. Since it is a significant
expenditure, most consumers compare features and costs across various brands.
Thus, it is not necessary for a consumer to purchase the same brand purchased
previously. Thus, it is difficult to maintain brand loyalty, since brand-driven
purchasing habits are difficult to establish. As a result of intense competition and

Consumer Durables
absence of brand loyalty, CD manufacturers have little pricing power—as is

evident from the intense price competition in these markets.
Persistin g infrastru ctu ral bo ttlenecks

In spite of Government initiatives over the decades towards rural electrification, in
reality, power supply to rural areas has been inadequate and erratic as well. Even
where electricity is available, it would be used mainly for energising pump sets,
and not domestic use. This would explain the lack of penetration of electrical
appliances in rural areas. According to the NCAER estimates, around 34.2% of
rural households were electrified by 1995-96. Thus, when only electrified
households were taken into consideration, the average ownership of electrical
goods jumped from 0.82 to 2.48 per household as compared with 3.39 for urban
households. If the penetration figures for durables like B&W TVs and cassette
recorders were recalculated on this basis, they would even surpass the
corresponding urban figures.
Data from National Family Health Survey-II (NFHS-II) indicates that there has
been a considerable improvement in the pace of coverage of electricity at the
household level during the 1990s. At the national level, the proportion of
households having access to electricity was 60% in 1998-99, comprising 48% for
rural areas, and 91% for urban areas. Per capita consumption of electricity has
also improved from 191 kwh in 1986-87 to 355 kwh in 1999-2000.
In addition to inadequate electricity, lack of running water and insufficient

habitation are also factors hindering the consumption of CDs in rural India. One of
the major reasons for the unpopularity of washing machines in the rural areas
would be the absence of running water (required for their operation) in villages.
Further, as per the Census of 2001, only 39% of the 192 million households in
India had access to water within their premises. The condition of shelter in
villages (kutcha, semi-pucca or pucca) is also an important attribute, since for
semi-pucca and kutcha households, any lumpsum money earned would be spent
preferentially in the upgrading of dwelling units rather than acquisition of durable
assets.
Sensi tive to Government Policies

Till the 1980s, the CD sector was looked upon as a luxury goods sector, and
successive Government policies treated it accordingly. While on the one hand, high
rates of excise were levied on consumer goods manufactured domestically, on the
other, import barriers were raised either in the form of quantitative restrictions or
high tariff protection. Since the launch of liberalisation in 1991, Government
policy, as far as the duty structure is concerned, has followed a two-phased
approach. Initially, the trend was towards reduction in duties—both excise and
customs—from the high levels persisting at the beginning of the 1990s. The
reasons, respectively, were in permitting Indian consumers a gradual access to
goods from international suppliers, and improving the competitiveness of the
indigenous industry. The strategy over the last few years has been both reduction,
and rationalisation of duties to a limited number of slabs—for greater

Consumer Durables
transparency and administrative convenience. The impact of the rationalisation

process has been mixed for different items. For instance, with excise
rationalisation, many higher-end items have benefited, while some lower-end
items (like stand-alone radio sets and B&W TVs), hitherto enjoying lower rates,
have been adversely affected. Government policies have also facilitated the growth
of some segments in the Indian CE market at the expense of others. The birth of
CTV in India can be traced to the Asian Games held in New Delhi in 1982. The
second phase of CTV growth came on the heels of the 1991-initiated economic
liberalisation programme, after which there was a reduction in both excise and
import duties. Simultaneously, with the opening up of Indian skies to foreign
satellite channels in 1991-92 and the coming of cable TV, the demand for CTVs
grew further. During the mid-1990s, controls on foreign direct investment in the
sector were relaxed and several items (including CTVs) were delicensed, and
removed from the negative list to the Special Import Licence (SIL) list. Because of
the reduced prices of CTVs, and the declining price premium over B&W TVs, the
demand for B&W TVs has shrunk. Although much of this is attributable to a
larger number of middle income households going in for first purchase of CTVs (or
second hand CTVs) rather than B&W TVs, an important demand deterrent has
been the increase in the excise on B&W TVs and B&W picture tubes. The Union
Budget for FY2002 imposed a 4% excise duty on B&W TVs, which was increased to
8% in the Union Budget for FY2003, and 16% in the Union Budget for FY2005.
B&W picture tubes account for about 40% of the manufacturing cost of a B&W TV,
and the excise on them was raised from 13% to 16% in the Union Budget for
FY2000.
As shown above, the impact of economic liberalisation and reforms in general, and
reduction in excise and customs duties on CDs in particular, has been reflected in
both increased growth and penetration of CDs.
Many of the Government policies on the CDs sector have been influenced by
international guidelines, especially those of the World Trade Agreement (WTO). In
compliance with the WTO guidelines seeking removal of quantitative restrictions
(QRs) on the import of all goods, the Government of India (GoI) has, over the last
few years, transferred many items to the Open General Licence (OGL). Moreover,
as a signatory to the Information Technology (IT) Agreement of the WTO, India is
bound to reduce the tariffs on select electronics items to zero by the year 2005.
Another key international guideline, which affects the refrigerator and RAC
sectors, is the Montreal Protocol (MP). The MP stipulates the complete phaseout of
the use of chlorofluorocarbons (CFCs) as refrigerants and other ozone depleting
substances (ODS) by the year 2010.
Limited Th reat o f Imports

Because of the intense competition in the market over the past few years, there
has been a significant erosion in price realisations of CD manufacturers over the
past few years. Combined with high customs duty on import of finished goods,
many players, who previously imported CDs for sale in the Indian market, have
set up their own manufacturing facilities in India. At present, import of low- to
middle-end CDs is not viable because of the intense price competition, which

Consumer Durables
renders the imported finished goods uncompetitive on price. However, many

manufacturers import high-end CDs (e.g. side-by-side refrigerators, flat panel
display TVs such as plasma, liquid crystal display TVs, projection TVs), the
manufacture of which is not viable, given the present domestic demand.
Imports of CDs into India

Rs. million
FY1999 FY2000 FY2001 FY2002 FY2003
CTV 441 245 157 225 351
B&W TV 2 6 9 27 47
Video Monitors 34 121 153 112 196
Airconditioning-Window/wall/self 116 345 582 478 501
contained/split
Household Refrigerators 238 714 625 723 883
Household or laundry type 334 411 668 505 454
washing machines
Compiled by INGRES
POLICY FRAMEWORK
The prospects of the Indian CD sector have been influenced by Government
policies regarding duties, foreign trade policies, norms for foreign investment and
sectoral incentives, especially for promotion of exports.
Excise Duties
The Government policy for excise duties on TVs has broadly followed two different
trends of reduction and rationalisation. The rates on some end-products (like CTVs
and audio products) and some components (like CPTs, deflection yokes,
transformers, electron guns and integrated circuits) have declined continually.
While in the years after the launch of economic liberalisation the policy was to
reduce excise duties so as to improve the global competitiveness of the Indian
electronics industry, the predominant motive in the late 1990s was rationalisation
of the rate structure into a few slabs, alongwith a reduction in duties. In the Union
Budget for FY1998, the rates were rationalised into 0%, 8%, 13% and 18%.
However, in the Union Budget for FY2000, the slab rates were changed to 0%, 8%,
16% and 24%. In the Union Budget for FY2001, a single central value added tax
(Cenvat) of 16% was proposed. In this process, items that earlier were within the
8% and 13% slabs, were lifted into the 16% bracket.
In addition, in the Union Budget for FY1998, the mechanism of excise based on
maximum retail price (MRP) was initiated for all end-products. The excise was
calculated on the MRP after applying a discounting factor, or `abatement’, so as to
account for the sales tax, excise and octroi levies. While the abatement rate
applicable for most durables was fixed at 40%, that for CTVs was 30%.
In the Union Budget for FY2002, a 4% excise had been imposed on B&W TVs, a
product that was exempted from excise since 1994. The excise duty was increased
to 8% in the Union Budget for FY2003, and to 16% in the Union Budget for
FY2005. In addition, the Union Budget for FY2005 also imposed a 2% education
cess on all excise duties.

Consumer Durables
Excise Duties on CDs Items

FY 1997 1998 1999 2000 2001 2002 2003 2004 2005
CTVs 20% 18% 16% 16% 16% 16% 16% 16%
B&W TVs Nil Nil Nil Nil Nil 4% 8% 8% 16%
ACs 40% 30% 30% 24% 16% 16% 16% 16% 16%
(+6% (+16% (+16% (+16% (+8% (+8%
SED) SED) SED) SED) SED) SED)
Refrigerators 20% 18% 18% 16% 16% 16% 16% 16% 16%
Washing Machines 20% 18% 18% 16% 16% 16% 16% 16% 16%
(+16%
SED)
Compiled by INGRES
Union Budget for FY2005 has imposed a 2% education cess on excise duties.
Customs Du ties
The rates of customs duties have now come down considerably from the very high
level of 65% in FY1995. The peak rate of customs duty was reduced from 35% to
30% in the Union Budget for FY2003, from 30% to 25% in the Union Budget for
FY2004, and from 25% to 20% in the Interim Budget of January 2004. The Union
Budget for FY2005 has not resulted in any change in peak rate of customs duty.
However, the Budget has imposed a 2% education cess on customs duties.
Customs Duties on CDs Items

FY 1997 1998 1999 2000 2001 2002 2003 2004 Interim 2005
Budget
CTVs 50% 40% 40% 40% 35% 35% 30% 25% 20% 20%
B&W TVs 50% 40% 40% 40% 35% 35% 30% 25% 20% 20%
CPTs 30% 30% 30% 35% 35% 35% 30% 25% 20% 20%
ACs 25% 20% 20%
50% 40% 40% 40% 35% 35% 30%
Refrigerators 25% 20% 20%
50% 40% 40% 40% 35% 35% 30%
Compiled by INGRES
Union Budget for FY2005 has imposed a 2% education cess on customs duties.
Basic Customs Duties on Washing Machines

FY 1997 1998 1999 2000 2001 2002 2003 2004 Interim 2005
Budget
Dry linen capacity <=10 kgs
FA machines 50% 40% 40% 40% 35% 35% 30% 25% 20% 20%
SA machines 50% 40% 40% 40% 35% 35% 30% 25% 20% 20%
Dry linen capacity >10 kgs 50% 30% 30% 35% 35% 35% 30% 25% 20% 20%
Compiled by INGRES
Union Budget for FY2005 has imposed a 2% education cess on customs duties.
Inform atio n Techno logy Agreem ent

The Information Technology Agreement (ITA) is a plurilateral agreement within
the World Trade Organisation aimed at expanding world trade in information
technology (IT) products. The ITA recognises the key role that trade in IT products
plays in the development of information based industries and the dynamic
expansion of the world economy.

Consumer Durables
India became a signatory to the ITA on March 25, 1997. In compliance with the
ITA guidelines, India has to reduce import duties on 217 items to zero between
2000 and 2005, in a phased manner. The duties on 95 items were already reduced
to zero by 2000. As for the remaining, the duties on 4 items were to be reduced by
2003, on 2 items by 2004, and on the balance 116 lines by 2005. The products
include several electronic items/components like flat panel displays (including
LCD, plasma and other technologies), PCBs, loudspeakers, and magnetic tapes.
The Union Budget for FY2003 postponed the implementation of the ITA
agreement from 2003 to 2005.
Quan titative R estri ction s

In line with the WTO recommendations, of the 1,429 items in India’s Special
Import Licence (SIL) category, 714 were transferred to the Open General Licence
(OGL) category in March 2000 through the Exim Policy 2000, while the remaining
items were transferred in March 2001. The consumer electronics items that were
removed from the restricted category in the first phase (March 2000) were:
! Audio products—compact audio disc players and compact disc changers
(including minidisc/laserdisc players); complete high-end music systems;
pocket-size radio cassette players; watches
! Video products—projection TVs; 8 mm video tapes/cassettes (in finished form)
! Components—CPTs of size 20” and 21”, as well as their sub-assemblies (except
for full and flat square tubes, or FFSTs); printed circuit boards (PCBs); single
and multiple loudspeakers
The items that were freed in March 2001 include radio broadcast receivers,
cassette players and TVs.
During the early 1990s, window ACs and split ACs (below 2T) were on the
negative import list. Split ACs above 2T could be imported under the SIL scheme.
However, there has been a gradual removal of all restrictions since, in line with
the WTO recommendations. Currently, RACs are placed under OGL.
In white goods, although after the launch of economic liberalisation, the

Government brought down the tariff barriers on white goods imports, it placed
many quantitative restrictions on imports of specified classes of items within the
white goods category. For instance, refrigerators below 300L capacity and washing
machines with dry linen capacity below 5 kgs were kept on the negative import list
till FY1999. Imports of refrigerators above 300L capacity and washing machines
above 5 kgs capacity could be made only under a Special Import Licence (SIL).
However, over the last three years, the Government has removed these restrictions
in compliance with the guidelines of the World Trade Organisation (WTO).
Refrigerators were moved to the OGL in 1999, while the imports of washing
machines and microwave ovens were deregulated in 2000.
Montreal Pro tocol

In September 1987, a group of 46 countries adopted the Montreal Protocol (MP) on
Substances that Deplete the Ozone Layer, towards phasing out the use of a

Consumer Durables
number of chlorofluorocarbons (CFCs) and halons. At present, the MP Protocol has

been ratified by 186 countries. India ratified the MP on June 19, 1992, and is
eligible for grant assistance from the Multilateral Fund for the Implementation of the
Montreal Protocol (MFMP), which was established to provide support to eligible
developing countries to meet their MP obligations.
As of 1998, India was the fourth largest CFC consumer and the second largest
CFC producer in the world. The total CFC consumption in 1997 was 6,703 metric
tonnes (MT), accounting for 5.3% of world consumption, and the total CFC
production in 1997 was 23,658 MT (accounting for 16.4% of world production).
Along with other countries, the MFMP has established a grant programme
towards phasing out ODS from India. The Montreal Protocol Executive Committee
(ExCom) has appointed the World Bank as one of the agencies to implement the
ozone depleting substances (ODS) Programme. In 1999, India was granted US$ 82
million to assist in the complete phase out of the chemicals under the terms of the
MP.
In line with the stipulations mentioned, the Government of India (through the
Ministry of Environment and Forests or MoEF) has been entrusted to issue CFC
production quotas to the four CFC producers (SRF, Gujarat Fluorochemicals,
Chemplast Sanmar and Mafatlal Industries) each calendar year, totaling no more
than the national production ceiling. The enterprises would report their production
levels regularly to the MoEF, which would administer the CFC production quota
scheme. The production quotas may be traded among the enterprises, upon
authorisation by the MoEF.
FINANCIAL PERFORMANCE
To analyse the financial performance of the companies in the Indian CD sector, we

have conducted an analysis on three different segments—RACs, Consumer
Electronics (TVs, Video, and Audio equipment), and White Goods (Refrigerators,
Washing Machines, etc). Companies do not typically provide segment wise results.
RACs
Inspite of an increased customer tendency to go for greater value-added products
(as evident from the increase in the share of split ACs in the total AC sales during
this period), the average sales realisation on ACs have shown a declining trend
over the past few years. The realisations have declined because of increased
competition from market entrants such as LG and Samsung, which forced
established players like Carrier and Voltas to reduce their prices in order to
protect their market shares. Price realisations declined further during FY2004
because of the excise reductions announced in the Union Budget for 2003-04.
Because of the significant decline in price realisations and increase in selling

expenses, the operating margin for the AC industry as a whole have shown a

Consumer Durables
declining trend over the past five years. The operating margin rose in FY2000, in
spite of lower realisations, because of a move towards cost control on the part of
most players, which more than compensated for the lower price realisations. Since
then, operating margins declined during FY2001-03. The operating margins
increased marginally during FY2004 because of higher sales volumes and reduced
excise duties, However, as is evident from the following figure, the overall trend in
operating margins has been one of decline, mainly because of increased
competition.
Trends in margins in RACs

percent
6 5.9 Operating Margins

5.5
Net Margins
5
4.5
4
3.1
3 2.8 2.7 2.7
2.5 2.5
2 1.7
1.6
1 0.8
0
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
As can be seen above, the operating margins declined significantly during FY2004
because of lower operating margins for some major players such as Blue Star,
losses by Hitachi Home & Life, and non-inclusion of results for Carrier Aircon
(which delisted from stock exchanges).
During FY2000-2002, in spite of a significant decline in interest costs, the net

margin declined because of declining sales realisations and operating margins.
During FY2003, inspite of a decline in operating margins, many major players
such as Carrier and Voltas reported improved margins because of declining
interest costs (caused by repayment of earlier higher-cost debt). The trend
continued into FY2004, with net margins increasing from 1.7% during FY2003 to
2.6% during FY2004. The net margins also improved because of lower losses
reported by Hitachi Home & Life.
White Good s
The average sales realisations on refrigerators have been declining. With the entry
of multinationals during the mid-1990s, the realisations fell in FY1998, since, with
the entry of multinationals, most of the Indian players lowered the prices of their
offerings to protect market shares. The figure for refrigerators rose in FY2000 and
FY2001, which could be explained partially by the increased take-up of FF models.
However, with the stagnation of the market during 2001, average realisations
declined during FY2002 and FY2003. Realisations also declined because of
stagnant sales volume during FY2002, which has resulted in increased pressure on

Consumer Durables
prices. Realisations have also declined because of excess capacity and intense
competition in the segment.
Trends in Refrigerator Sales Realisations
8,800 Rs. per unit

8,600 8,607
8,499
8,400
8,200 8,088
8,000 7,918
7,800
7,600 7,529
7,420
7,400
7,200
7,000
6,800
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
Realisations on washing machines have also displayed a declining trend over the
past few years. The rise during FY1999 was mainly because of a market shift from
price-driven to value-driven competition. However, inspite of a gradual shift in the
market towards higher-value fully-automatic machines, the entry of new players
and intense competition has resulted in declining average sales realisations during
the last three years.
Trends in Washing Machines Sales Realisations
8,000 7,992 7,974 Rs. per unit

7,800 7,766 7,731
7,600
7,400
7,210
7,200
7,000 6,990
6,800
6,600
6,400
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
For the white goods sector as a whole, the average operating margin dropped
marginally in FY1998, but showed an increasing trend thereafter till FY2000,
owing to an emphasis on cost control. However, operating margins have declined
sharply since then because of increased competition resulting in continuous price
erosions, lower unit realisations, increased employee costs. The industry has
benefited from reduced excise duties, which have declined from 10.6% of OI during
FY2000 to 6.1% during FY2004. However, excise duty declines have been passed
on to the consumer because of increased competition.

Consumer Durables
While raw material costs have declined from 60.7% of OI during FY2000 to 58% of
OI during FY2004 (however they increased from 54.7% during FY2003), selling
and administrative expenses increased from 16.2% of OI during FY2000 to 17.8%
during FY2004. As a result, cost of sales increased from 89.3% of OI during
FY2000 to 97% during FY2004. The high increase in cost of sales resulted in a
decline in operating profits and operating margins. Operating margins declined
from 10.7% in FY2000 to 3.4% in FY2003, and to 2.6% during FY2004.
Consolidated Operating Margins (%) for White Goods Sector
12
10.7
10.2
10
8
7.2
6 6.0
4 3.4
2.6
2
0
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
All major listed white goods manufacturers reported reduced operating margins
during FY2004. Notably, Whirlpool’s operating margins declined sharply from
6.5% during FY2003 to 1% during FY2004, caused mainly by a significant increase
in raw materials costs. Its average costs of steel sheets increased from Rs. 33
during FY2003 to Rs. 36.8 during FY2004. EKL also reported an operating losses
of Rs. 964 million during FY2004, as compared with operating losses of Rs. 1,163
million during FY2003. Although operating losses declined because of reduced
sales, operating loss margin increased from 27.7% during FY2003 to 33.7% during
FY2004, caused by higher employee expenses, and higher selling and
administrative expenses. The operating margins of Videocon Appliances Limited
(VAL) also declined from 17.3% during FY2003 to 16.8% during FY2004 primarily
because of higher raw material costs.
Because of lower operating margins, the net margins have turned negative since
FY2002. Net margins had improved during FY2000 and FY2001 mainly because of
improved operating margins. However, capital expenditures on capacity expansion
have resulted in increased interest and depreciation charges, thereby depressing
profitability.

Consumer Durables
Consolidated Net Margins for White Goods Sector
1 0.9
0.4
0
-1
-2
-3 -3.1
-4
-4.3
-5 -5.0
-6
-6.6
-7
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
The net margins have also turned negative because of net losses incurred by EKL
during FY2002-04, and the losses incurred by Whirlpool during FY2004. EKL has
reported net losses since FY2002, mainly because of increased raw material,
selling, interest, and depreciation charges. Whirlpool of India Ltd., which had after
incurring a net loss of Rs. 148 million during FY2000, reported a net profit of Rs.
205 million during FY2001. However, its net profits declined since then declined to
Rs. 86 million during FY2003. Whirlpool reported a net loss of Rs. 336 million for
the 15 month period ended March 2004, because of reduced operating margins,
and lower non-operating income. Two BPL Group companies—BS Appliances
Limited and BS Refrigerators Limited—have also been reporting losses over the
last few years, because of sharply declining sales volumes.
The interest costs for the Indian white goods sector as a whole increased sharply
till FY1998 because of both a rise in the interest rates and an increase in the debt
level, as the companies went in for larger borrowings to finance capacity expansion
and upgrade. In fact, the average debt-equity ratio of the sector has risen
monotonically between FY1997 and FY2000. However, over the past few years,
there has been a decline in interest costs, as a percentage of operating income,
because of lower debt levels and reduced interest rates in the economy. With
companies investing in new plants and manufacturing capacities, there has been a
net increase in the depreciation expenses as percent of OI.
Consum er Electron ics

The trend in the sales realisations on CTVs witnessed a decline over the last few
years, reflecting the increased competition in the sector, and a decline in cost
structure caused by lower prices of CPTs. The decline in the initial years was
indicative of the increased competition following the entry of multinational
players. Right from the outset, the new entrants adopted aggressive marketing
strategies (including customer-friendly exchange schemes) and the established
players initially tried to counter them by adopting a price-cutting strategy.

Consumer Durables
Exchange schemes became a favourite marketing tool with all the players from
FY1997 onwards, which also added to the lowering of sales realisations. The price
reductions were supported by the reduction of excise duties from 20% to 16% over
the period FY1997 to FY1999. However, since FY2001, price took a back seat with
the players trying to differentiate on premium models, which were both
technologically and aesthetically superior. Such efforts included the launch of flat
television models by many players. The growth in the market for large screen
(above 21”) has also contributed to the increase in price realisations. However, on
the whole, prices of comparable CTVs have been declined continuously over the
last several years.
Trends in CTV’s Average Sales Realisations
9,600 Rs. per unit

9,408 9,437
9,400 9,326
9,250
9,200 9,149
9,000
8,800
8,600 8,584
8,400
8,200
8,000
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
Sales realisations on B&W TVs have registered a decline over the past few years,
with demand for the product dropping continually. However, realisations improved
since FY2002, because of the imposition of excise duty.
Trends in B&W TV’s Average Sales Realisations
4,400 Rs. per unit

4,207
4,000
3,555 3,668
3,600
3,262 3,320
3,200 3,121
2,800
2,400
2,000
1,600
1,200
800
400
0
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES

Consumer Durables
The operating margins for the Indian consumer electronics sector showed a rising
trend over the period FY1996 to FY2000. However, the operating margins declined
sharply during FY2001, before recovering during FY2002 and FY2003. Operating
margins recovered during FY2003 because of increased volume growth during
FY2003. However, operating margins declined during FY2004 because of the
higher advertising expenses incurred.
Trends in Consolidated Operating Margins—Consumer Electronics
12% 11.7%
11.0% 11.4%
10.6% 10.9%
10%
9.4%
8%
6%
4%
2%
0%
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
The operating margin rose sharply in FY1998 mainly because of the reduction in
excise duties both on the end-products (CTVs and audio products) and on most
electronic components (CPTs, deflection yokes, tuners, magnetic heads, tape deck
mechanism, etc.) from 20% to 18%. Moreover, the selling costs did not increase in
tandem with the sales, with the established players like BPL and Videocon being
able to leverage on their brand presence. The operating margin remained at 10.6-
11% during FY1998 to FY2000. However, operating margins declined sharply
during FY2001 because of negative sales growth, increase in prices of CPTs, and
less than proportional decline in raw material & selling cost. Operating margins
improved during FY2002 because of decline in raw material and employee costs. A
decline in raw material cost (from 73.7% of operating income during FY2001 to
70.6% during FY2002) and selling, general & administrative cost (13.3% to 12.1%)
resulted in a higher decline in cost of sales. As a result, operating margins
increased from 9.3% during FY2001 to 11.1% during FY2002. Further, operating
margins improved during FY2003 because of increased volumes, and marginal
decline in cost of sales as a percent of OI. During FY2004, inspite of a decline in
costs of CPTs, operating margins declined from 11.4% during FY2003 to 10.9%
during FY2004, because of lower growth in sales volume, decline in unit sales
realisations, and less than proportionate reduction in costs because of higher
advertising expenses incurred by some major players.
In spite of stable operating margins during FY1998 to FY2000, net margins had
shown a rising trend because of lower interest costs. However, net margins have
declined significantly since FY2002 because of lower operating margins, and
higher interest and depreciation costs (because of capacity expansions).

Consumer Durables
Trends in Consolidated Net Margins—Consumer Electronics
6%
5%
4.1%
4% 3.9%
3% 3.1%
2.2%
2%
1.7%
1% 0.8%
0%
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Compiled by INGRES
Net margins have also declined because of the significant losses incurred by BPL
on account of higher interest expenses. BPL reported a net loss of Rs. 2,146 million
for the 18 month period ended September 2003. During FY2004, other major
players such as Mirc and Philips also reported a significant decline in profitability
and margins. As discussed, net margins have declined because of higher interest
and depreciation costs, and costs incurred on business restructuring (including
voluntary retirement schemes). The interest costs increased because of the funding
of capacity expansions. Depreciation costs have also increased because of capital
expenditure on capacity expansions.
KEY SUCCESS FACTORS

Some key success factors in the Indian CD industry are identified below:
! Extensive Distribution Network: An important success factor for well-
entrenched domestic players has been their extensive distribution network,
arduously built up since the 1980s-1990s, which enables them to ward off the
onslaught of new entrants.
! Access to Internationally Proven Technology: In a world of continuous product
innovation leading to ever-shortening product life cycles, access to technology is
a significant core competence. The successful domestic players of today like
BPL and Videocon started off armed with internationally proven technologies
from global majors. While BPL tied up with Sanyo for its electronics goods,
Videocon depended on National for the latter’s expertise in washing machines
and other appliances. The success story of the second generation
multinationals, especially the Korean players LG and Samsung, got scripted
largely because of their ability to offer a wide range of innovative features
through a rich technology base built up through years of global experience.
Here, another example would be Godrej, which entered into a technical alliance
with GE Appliances in 1993 (which was called off subsequently), a move that
helped it retain the number one position till as late as 1999, even in the face of

Consumer Durables
competition from major global players like Whirlpool, Electrolux, LG, Samsung
and Daewoo.
! Brand Reputation: Brand image has been a major success factor in the highly
competitive scenario that marks the Indian CD industry. The importance of
brand building has been evident since the late 1980s, when the successful
domestic players till the late 1990s—BPL and Videocon—, and the new
generation of MNCs—LG and Samsung—were able to ensure their viability
through a focus on brand building from day one. Later, these players were able
to capitalise on their established brand strengths in one sector to move into
other sub-segments. On the other hand, there have been instances where an
indifferent attitude towards brand value has led to dilution of market presence.
Among the first generation multinational brands, Akai, which entered India
through a collaboration with Baron International, was pitched by the latter on
the price platform rather than value. Although the brand consolidated, its
presence through exchange schemes, spurring replacement demand, Akai’s
image as a Japanese brand eroded to some extent.
! Knowledge of Indian Market Peculiarities: One of the key reasons for the
multinational players taking time to consolidate their presence in India was
the lack of understanding of certain peculiarities of the Indian market. Thus,
factors responsible for their later success are revisions in strategy to focus more
on product innovation and customisation. In microwave ovens, for instance, a
key deterrent to demand was Indian food habit, which was incompatible with
oven cooking. Sensing the discrepancies, several players went in for
introducing features compatible with the Indian cooking culture. In washing
machines, while at the outset most of the players kept harping about the
cleaning power, a latent apprehension in the minds of many housewives was
the risk of damage that a mechanical action would produce on the fabric.
Sensing this need, players like LG have positioned their offerings as those
taking care of the fabric as much as manual washing would do.
! Building Individual Competencies and unique selling propositions (USPs): One
of the key ingredients in the strategy of successful players has been developing
a core competence and building it into the product offerings or in the company’s
basic business paradigm. For example, in consumer electronics, Sony has
adopted the mantle of the quality leader, with technology (especially the
Trinitron technology in televisions) being its core competence. Multinationals
like LG, Samsung, Electrolux, and Whirlpool, who have access to the global
technology base of their parent companies, have developed product features as
their USPs, which they have been highlighting through extensive subbranding
of their product lines.
! Promotion strategies:
strategies Brand and product promotion strategies are highly
important in the CDs business. The promotion strategies employed by various
players in the Indian CDs market may be classified as Consumer promotion
strategies (directed at the consumer); and trade promotion strategies (targeted
at the dealer). Consumer promotion strategies include exchange schemes, gifts
and prizes, special discount schemes, product warranties, convenient payment
schemes, celebrity endorsements, and customer service promises. Innovative
exchange schemes are likely to be a major promotional tool for many players,
given the extreme price sensitivity and the low affordability levels in Indian
consumer markets. Product warranties are also likely to be an important

Consumer Durables
promotional tool, especially in case of durables where consumers are very

quality sensitive. For instance, a key point of competition among different
players in the AC industry has been the offer of a five-year warranty on the
compressor. Unlike consumer non-durables, in CDs, the consumption of the
product takes place over a number of years. As such, relationship marketing is
an important promotional tool. Moreover, with the introduction of new
products incorporating newer technologies, many consumers need to be
reassured of timely assistance from the company in case of any problems
materialising in the appliance. With competition increasing, all the players
have realised the importance of customer service. To facilitate customers'
payment on durable goods, many players have come up with convenient
payment schemes, either through their dealers or through collaborations with
consumer financing institutions. Trade Promotion Strategies critical to dealer
push include cash incentive/price-off schemes, Tangible rewards having social
status connotations, promotional support, and training programmes.
! Operating Efficiencies: With increased competition, price erosion, and
diminishing brand power, the profitability margins in the CDs industry are
likely to decline further. In a scenario of intense competition, reducing prices
without being able to achieve a concomitant reduction in costs, would not be
counted as sound strategy. On the other hand, the operating costs are likely to
go up, as better technological features are incorporated in models, and more
aggressive efforts are made to communicate competencies in the market. For
domestic players, the pressure on margins is likely to be higher, as they would
either have to explore fresh technologies or invest considerably in product
research. In either case, the costs would go up and the benefits would accrue
only after a lag. The multinational players, on the other hand, would be able to
source the latest in technology from parents, and at a reasonable consideration.
The issue of costs would also highlight the importance of economies of scale,
and durables manufacturers are likely to look for markets beyond the borders
(as China based manufacturers are already doing) as a strategy. The fact that
India could serve as a production base for the Asian markets would also lend
weight to such a strategy.

Consumer Durables

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Consumer Durables

ICRA Sector Analysis

Report by ICRA Information, Grading and Research Service Page 1 of 63

Date February 2005

Report by ICRA Information, Grading and Research Service Page 2 of 63

Report by ICRA Information, Grading and Research Service Page 3 of 63

Market Size an d Segmen tation

Market Size and Segmentation

Report by ICRA Information, Grading and Research Service Page 4 of 63

Report by ICRA Information, Grading and Research Service Page 5 of 63

Trends in TV Market in India

Although the shrinking demand is attributable to a larger number of middle

Report by ICRA Information, Grading and Research Service Page 6 of 63

Report by ICRA Information, Grading and Research Service Page 7 of 63

condensation at higher temperature, and adiabatic expansion. These are

Segmentation of RAC Market in India

Source: TV Veopar Journal

Report by ICRA Information, Grading and Research Service Page 8 of 63

In DC refrigerators, refrigeration is accomplished through the direct contact of air

FF refrigerators operate on a principle called forced convection. In these models, the

Segmentation of Refrigerator Market in India

Source: TV Veopar Journal

The size of the domestic refrigerator market is estimated at 3.7million units

Report by ICRA Information, Grading and Research Service Page 9 of 63

While most developed countries have completely replaced DC refrigerators with

Segmentation of Washing Machines Market

Segment Washers Semi-automatic (SA) Fully automatic (FA)

Report by ICRA Information, Grading and Research Service Page 10 of 63

Report by ICRA Information, Grading and Research Service Page 11 of 63

Report by ICRA Information, Grading and Research Service Page 12 of 63

Size-wise segmentation of the B&W TV Market—CY2003

Source: TV Veopar Journal

Report by ICRA Information, Grading and Research Service Page 13 of 63

Segment-wise Demand Growth Trend in Domestic CTV Market

Trends in Region-wise Share of CTV Purchases

North South East W est

Report by ICRA Information, Grading and Research Service Page 14 of 63

Penetration of CTVs—Across Population Centres

Report by ICRA Information, Grading and Research Service Page 15 of 63

Trends in Region-wise Distribution of RAC Demand—CY2003

Source: TV Veopar Journal

Report by ICRA Information, Grading and Research Service Page 16 of 63

Geographically, the overall demand distribution for refrigerators in India has

In terms of segment-wise distribution, DC refrigerator sales are concentrated more

Geographic Distribution of Refrigerator (DC and FF) Sales during FY2004

Report by ICRA Information, Grading and Research Service Page 17 of 63

Region-wise distribution of washing machine sales during FY2004

Source: TV Veopar Journal

Geographically, the market for washing machines is not distributed uniformly,

Geographic Distribution of Washing Machine Sales during FY2004

Source: TV Veopar Journal

Report by ICRA Information, Grading and Research Service Page 18 of 63

State-wise Distribution of Washing Machine Sales—percentage

In the FA category, Maharashtra accounts for as much as 30% of the market,

The washing machines demand is characterised by a concentration in the urban

Distribution of Washing Machines Sales according to Population Centres

Source: TV Veopar Journal

Report by ICRA Information, Grading and Research Service Page 19 of 63

Distribution of Washing Machine Sales according to Population Centres

Washing machines are generally differentiated in terms of the capacity of the

Market Ch aracteristics—Pen etration Levels

Report by ICRA Information, Grading and Research Service Page 20 of 63

households, at a CAGR of 17.6%. Penetration levels increased to 281 in FY1998,

Overall Penetration of B&W TVs