ConsumerDurables_vJuly_15v1

8/3/2019 ConsumerDurables_vJuly_15v1

http://slidepdf.com/reader/full/consumerdurablesvjuly15v1 1/21

Consumer Durables India: On Growth Path



resentat on ontent

Summary

Introduction

Current Status

Key Growth Drivers

Challenges

s e ompan es

Conclusion



• Consumer Durables Industry in India to post ~15% CAGR growth over next five years.

• We believe that the consumer durables industry’s growth has been two pronged : (a) driven by lower

.

• Key growth drivers include:1. Continued economic growth demonstrated through 8.4% CAGR growth in GDP over last 5

years

.

3. Increasing Urbanization, nuclear families

4. Increase in disposable incomes; which drives consumption

5. Increasing affordability coupled with declining prices of products

6. Lower consumer product penetration

7. Availability of new products and technologies,

8. Easy financing schemes and

9. Increase in organized retail

• However, increasing raw material prices, intense competition and increased cost of service anddistribution are major challenges being faced by industry.

• Valuation and view: In a scenario of shorter product life cycles and increasing competition, we

believe that the companies with strong R&D, wide distribution network, strong brand would dominate

the segment. Indian consumer durables sector has limited stock selection available for value

investors. We have positive outlook on Bajaj Electricals.



~

Key Industry Dynamics

. ,next 5 years

Industry Size : Rs. 350bn

Key Categories : White Goods, Brown goods and Consumer electronics.

Competitive landscape : dominated by Korean majors like LG and Samsung in most of the segments

Margin Profile : Low margin, dependant on volumes

Growt opportunities : Lower penetration coup e wit increasing isposa e income

Segmentation of consumer durables industry

TVs, Refrigerators and air conditioners constitute

more than 60% of the market

White Goods Brown GoodsConsumer

Electronics

Refrigerators Microwave Ovens Television

Washing Machines Chimneys DVD players

Air Conditions Cooking Range VCD PlayersAudio Systems Mixers Mobile Phones

Grinders MP3 Players

Electric Fans

Irons

Sources : IBEF, GEPL Capital Research



Lifest le roducts to drive the rowth

• We believe the Indian consumer industry will exhibit robust 15% sales growth in 2011 and likely to

maintain double digit sales growth over medium term.

• Categories like Flat panel TVs, Microwave ovens, Air Conditioners and Refrigerators are likely to post

strong growth

• Urban growth is likely to be driven by new technology/innovative products, lifestyle products andreplacement demand such as LED TVs, Laptops, Split ACs. etc

• Rural markets are likely to outpace growth in the urban markets led by increasing penetration

across categories such as Refrigerators and Washing machines.

Flat Panel TVs, Microwaves are growing at fasterrate

Per capita expenditure on Furniture, furnishings anda liances increasin at health rate Amt. in Rs.

Consumer Durables Growth

2010 2011E

Market size Mn Units

713

848

982

1,135

22%

20%

22%

24%

800

1,000

1,200

Flat Panel TV 2.8 4.5 61%Refrigerator 9.0 12.0 33%

Washing Machines 5.0 6.0 20%

Air Conditioners 3.4 4.4 29%

585

17% 16% 16%

12%

14%

16%

18%

-

200

400

600

. .

Sources : CEAMA, MOSPI, GEPL Capital Research

FY06 FY07 FY08 FY09 FY10



Key Growth Drivers

Consumer Durables growth is directly linked to

GDP growth (8.4% CAGR in last 5 years)

Increasing per capita disposable income has key role

to play in consumer durable growth story (Amt in Rs.)

33.1

9.6 9.36.8 8.0 8.5

25.4

11.1

17.014.1

Real GDP Growth (%) Consumer Durable growth (%)

Low penetration in most of consumer durables New Technolo and lifest le trends creatin

FY07 FY08 FY09 FY10 FY11E

products (%) offers a huge market opportunity

replacement demand

Now Then

• Flat Panel LED LCD TVs- CRT TV

• Frost Free Refrigerator Direct Cool Refrigerator

• Convection Microwave Basic Microwave

Sources : CEAMA, MOSPI, GEPL Capital Research

• Blue Ray, DVD players Cassette Players



Key Growth DriversPeople in 15-64 years age group are major

consumers of the products (% of Population)

Increasing Urbanization leading to demand growth – By

2020 ~35% people are estimated to reside in urban

areas.

365 465

465

220 280

34.8

27.725.8

31.359 61

64 66 66

55 60 65

220 280

365

34.8

27.725.8

31.3

Increasing rural income to drive rural demand- In

2025, 22% of rural population will earn Rs. 0.2-0.5 Other growth drivers

1990 2000 2010 2020

50 1991 2001 2011E 2021E 2031E

1990 2000 2010 2020

• Falling prices of lifestyle products- increased affordability

• Eas financin schemes

• Changing perceptions, aspirational demand

• Increase in organized retail from 6% currently to more

than 15% in FY15

Sources : Marketing Whitebook, GEPL capital research



• Rural Consumer durables markets is growing by 30% currently, expected to grow by 45% in FY12

• Approximately 69% population resides in rural India yet only 35% sales is contributed by rural

markets. However, this sales contribution is expected to increase to ~45% in near future.

• Rural markets are expected to post much faster growth than urban markets in medium term led by

1. Increasing rural Income with higher contribution from non farm income.

2. Miniscule penetration (5-7%) in many product categories generating demand from first time

buyers

3. Increased distribution reach of consumer durable companies

4. Customized products for rural consumers

5. Product awareness through advertising

• Growth is mainly contributed by first time buyers of products unlike replacement demand in urban

• Improved rural infrastructure, agricultural reforms, power availability will boost growth going

forward.

• Entry of private labels in rural market may fuel competition.



• Intense competition among players - leading to higher ad spends and lesser pricing power, thereby

lowering margins

• Increase in raw material rices – ma or raw materials metals are exhibitin increasin trend osin

margin pressures; however, shift in product mix to partially offset increase in input costs over the

medium term

• Changes in technology - making product lifecycles short

• ura s r u on - ava a y o pro uc s o masses s cu as o n a s popu a on s

lives in rural areas.

• Entry of cheap products - as private labels in organized retail

Metals are major raw materials in white goods

3.5%

4.4%4.9%

3.2%

5.2%

3.3%3.6%

4.7%

3.2%

4.6%FY10

FY11

1.5%1.3%

Whirlpool Hitachi Mirc Sympho ny IFB Bajaj

Sources : Company data, CEAMA, GEPL Capital research



Flat Panel TV- market shares Refrigerators- Market shares

ACs- Market shares Microwaves-Market shares

Sources : Display Search, CEAMA, GEPL Capital Research



Listed Pla ers• Indian consumer durable sector is dominated by unlisted MNCs like LG, Samsung and Sony etc

• There is limited stock selection in Indian listed space for value investors

• However, in a scenario of low product life cycles and increasing competition we believe that the

companies with strong R&D, wide distribution network and strong brand would dominate the

segment.

• Of the key listed consumer durable stocks, we like Bajaj Electricals primarily due to its strong ruralreach coupled with diversified product portfolio (small domestic appliances) and strong balance

sheet. We like TTK prestige given the strong demand growth for its product and sound fundamentals;

however we believe that it is tradin at rich valuations.

• In the small cap space, the stock to watch out for is Hitachi Home & Lifestyle. It is well placed to

benefit from strong growth in AC segment and it is aggressively launching products to carve a niche

for itself.

• However, as most of the companies are mid-cap and small cap companies (Mcap less than Rs., .

Consumer Durables Index Vs BSE SENSEX Individual stock returns (%)

Sources : BSE, Bloomberg, GEPL Capital Research



Sources : Company data, Bloomberg, BSE, GEPL Capital Research

* Standalone numbers, ** For Symphony Ltd year end is June



Whirl ool of IndiaCompany Background:

• A 75% subsidiary of Whirlpool Corporation USA.

• Operates under ‘Whirpool’ brand in categories like

Key Financials

, , ,

ovens, dishwashers, dryers, and water purifiers.

• It has 3 manufacturing facilities at Faridabad, Pune and

Pondicherry.

• Refrigerators, Washing Machines and ACs contribute 60%, 21%

and 11% respectively to revenues.

• Company targets to reach more than 700 tier II and tier III

towns to expand its distribution.

• Dominant position in Washing Machine and Refrigerator

segment

• Diversified product portfolio with presence in all white goods

categories

Stock Price Performance

• Expanding footprint in tier II and tier III cities along with focuson modern trade

Concerns:

•

• Competition from established players like LG and Samsung




Company Background:

• Operates in five business units; electrical

projects, appliances, fans, luminaries and lighting.

Key Financials

• Presence in sma omestic app iances segment.

• Appliances and Fans contribute to 25% and 19% revenuesrespectively.

• It sells its products under the brand name of Bajaj. The

company also has tie ups with international brands like

Morphy Richards, Nardi, Midea among others.

• It has strong reach of 600 distributors and 5000 authorized

dealers.

• Diversified product portfolio

• Focus on under-penetrated rural and semi urban market

• Strong rural distribution reach

• Strong financial health with zero debt status

• Less prone to competition unlike white goods companies• Well poised to benefit from strong growth in appliances in

rural India

Concerns:

• Unable to enhance its presence in white goods space




Company Background:

• Expanded its product presence from CTVs to other segments

like LCDs, Washing Machines, ACs, Mobile phones, Microwave

Key Financials

.

• Operates under the brand name ‘Onida’. Revenue

contribution from CTVs, ACs, Mobile phones and LCDs was

36%, 21%, 12.5% and 9% respectively.

• Manufacturing facilities at Thane , Noida, Roorkee.

• Currently 800 distributors and 3,200 dealers. Plans to

increase to 5,500 dealers.

Key Strengths•Stock Price erformance

• Strong distribution reach in west and south with more than

3,000 dealers

• Management targets Rs. 40bn revenues by FY14 (28% CAGR)

• Strong investment in R&D in mobile handsets category.

Concerns:• Increase in raw material costs

• Competition from established players like LG and Samsung

Sources : Company Data, Bloomberg, BSE, GEPL Capital Research



Hitachi Home and Life Solutions

Company Background:

• A 69.9% subsidiary of Hitachi Appliances, Japan.

• O erates in ACs in room AC ductable ran e of AC and

Key Financials

telecom AC) refrigerators, washing machines and chillers

under the brand name of Hitachi.• 90% of the revenues are contributed by ACs.

• Two manufacturing facilities in Mehsana (Gujarat) and

Jammu.

• Targets to reach 3,000 dealers by end of 2011 from current

1,800 dealers.

Key Strengths

• Strong player in AC segment (10% market share)

• Company well positioned to benefit from strong growth in

AC segment which is growing at ~30%

• Increased manufacturing capacity by 60% to 400,000 in FY10

to push up volume growth.

Stock Price Performance

Concerns:• Increase in raw material cost

• High Investments in inventories due to seasonal nature of

business




S m honCompany Background:

• Primarily operates in air cooler segment.

• Network of more than 450 distributors with more than 6600

retail dealers.

Key Financials

• Turned profitable and zero debt company from a sick

company in 2002• Manufacturing facility at Ahmedabad in Gujarat.

• Caters to both domestic and international markets and has

Key Strengths

• Market leader in organized air cooler industry (45% market

share) with broad product portfolio with13 variants.Price chart a ainst SENSEX

• Industry expected to growth at a healthy rate (global

warming, low cost of ownership against ACs)

• Better margins and return ratios than other consumer

durable companies

• Strong financial health with zero debt equity status

• Less prone to competition unlike white goods companies

Concerns:

• Highly dependent on single product

• Competition from unorganized sector

•business

Sources :Company Data, Bloomberg, BSE, GEPL Capital Research



Company Background:

• One of the leading players in kitchen appliances such as

pressure cookers, non-stick cookware, gas stoves and

Key Financials

domestic kitchen appliances.

• Network 216 ‘Prestige smart kitchen’ stores and 9,000 plus

dealers.

• Two manufacturing facilities at Tamilnadu and Uttarakhand

in FY11

• Launched products such as Induction cook tops, Induction

compatible pressure cookers and cookware, Microwave

Pressure Cookers and Apple range of inner lid pressure

cookers.

Key Strengths

• Biggest kitchen appliance company in India with wide

product range

• Strong rural demand in branded kitchen appliances

• Launch of new roducts caterin to unmet needs.

• The company has a strong retail network of own stores (276stores)

• Strong distribution network of dealers and distributors.

• Strong financial health with zero debt on balance sheet.

oncerns:

• Competition from unorganized sector

• Any fluctuation in Aluminum (major raw material) costimpacts margins directly




IFB IndustriesCompany Background:

• Presence in home appliances (85% revenues) and fine

blanking for automotive sector (15% revenues).

Key Financials

• e ome app ances us ness nc u es m crowave

ovens, dishwashers, dryers, and kitchen appliances under

the brand name of ‘IFB’.

• The Home Appliances sector accounts for ~ 85% of revenues

and the remaining 15% is fine blanking segment.

• Its manufacturing plants are located in West

Bengal, Goa, Bhopal and Bangalore.

Key Strengths• .

• Strong Balance sheet with zero debt status

• Increasing footprints to Tier II and Tier III cities.

Concerns:

• Increase in raw material cost

• Competition from established players like LG and Samsungand Whirlpool




Conclusion• We believe that the Indian consumer durables industry will post strong double digit growth of ~15%

over the next 5 years.

• We believe that the industry will continue to grow led by lower penetration, increasing disposable

ncome, easy cre ava a y coup e w ec n ng pr ces. ncreas ng rura eman wou e

the key feature of the industry growth going ahead.

• However, increase in raw material prices and intense competition among players, are key

challenges for the industry.

• In a scenario of shorter roduct life c cles and increasin com etition we believe that the

companies with strong R&D, wide distribution network, strong brand would benefit most from the

strong industry growth.

• Of the key listed consumer durable stocks, we like Bajaj Electricals primarily due to its strong

rural reach coupled with diversified product portfolio (small domestic appliances) and strong.

product, innovative product launches and sound fundamentals; one can consider investing in this

stock even though it is trading at rich valuations.

• In the small cap space, the stock to watch out for is Hitachi Home & Lifestyle. It is well placed to

benefit from strong growth in AC segment and it is aggressively launching products to carve a niche

for itself.• However, as most of the companies in consumer durable space are mid-cap and small cap

companies (Mcap less than Rs. 32bn), they have an inherent liquidity risk and high volatility risk

attached to them.



: + c anc a gep cap a .com

GEPL CAPITAL Pvt Ltd (formerly known as Gupta Equities Pvt Ltd)

Head Office: D-21/22 Dhanraj mahal, CSM Marg, Colaba, Mumbai 400001 Reg Office : 922-C, P.J. Towers,Dalal Street, Fort, Mumbai 400001

. .

for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or asolicitation to support any security. The information contained herein is obtained and collated from sources believed reliable and we do not represent it

as accurate or complete and it should not be relied upon as such. The opinion expressed or estimates made are as per the best judgment as applicable

at that point of time and are subject to change without any notice. GEPL Capital Pvt. Ltd. along with its associated companies/ officers/employees mayor may not, have positions in, or support and sell securities referred to herein.

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ConsumerDurables_vJuly_15v1