Consumer durables sector likely to see lukewarm festival season

India's festival season, which begins in October, is unlikely to add any shine to the country's `40,000 crore con- sumer durables and electronics industry because high inflation and interest rates are expected to dampen sales growth.

“The industry will not see growth of more than 5-6% in the festive season this year, which is significantly lower than last year's growth rate of 12%,“ said Soumya Kanti Ghosh, a director at the Federation of Indian Chambers of Commerce and In- dustry (Ficci).

Ghosh leads the industry lob- by group's economics and re- search unit, which compiles monthly data for the consumer durables sector in collaboration with the Central Statistics Office of the ministry of statistics and programme implementation.

Ghosh added the increase in equated monthly instalments (EMIs) due to recent interest rate hikes will also create pres- sure on a consumer's wallet.

The Reserve Bank of India has raised rates 12 times since March 2010, making loans costlier.

A large number of Indians prefer to buy consumer goods and home electronics on hire purchase. Dealers say some 40% of the good sold in the festive season is purchased through this route.

In the premium goods segment (in which a product costs more than `30,000, according to most dealers and retailers), sales might actually fall.

“Sales might dip by about 10% this coming Diwali for premium products as they might not sell much due to a steep rise in EMIs,“ said Nilesh Gupta, man- aging director, Vijay Sales, a Mumbai-based dealer of con- sumer products.

A well-known consumer electronic firm may see slow sales growth “as the middle class and the upper middle class are not buying due to increasing EMIs and inflation", said an operations manager at a company- owned showroom in the National Capital Region. He spoke on condition that neither he nor his company be named.

Wholesale Price Index rose to a 13-month high of 9.78% in Au- gust from 9.22% a month ago.

The interest rate on loans for consumer products have shot up by about 4 percentage points in the last two years from 13% a year in September 2009 to about 16-17% now. The lacklustre sales forecast for the festive season is in line with the slower growth rate seen right from the start of this fiscal year.

The consumer durables in- dustry grew at a meagre 4.2% between April and July, com- pared with a healthy 18.5% during the same period in the previous year, Ficci data shows.

Little surprise then that several brands are holding back marketing and promotions expenditure. Whirlpool of India Ltd has cut back advertising budget to `12-15 crore this year from `18-20 crore last year. “We are going through a terrible period of slowdown in demand", said Shantanu Dasgupta, vice-president, corporate affairs and strategy, Whirlpool of India.

LG Electronics India Pvt.
Ltd, too, has slashed its market- ing spend by about 12-15% this year owing to flat sales, said Y.V.
Verma, chief operating officer.

However, Verma also said his company will improve sales by about 25% as festivities gain mo- mentum. The company's annual revenue was `16,000 crore last year.

Whirpool, too, estimates to grow sales by 10-15% in the next three months compared with last year's growth of 25%.

The sector will not be able to see healthy growth, according to Pinakiranjan Mishra, partner and national leader, consumer products and retail, at consul- tancy firm Ernst and Young.

“However, individual compa- nies might be able to achieve their targets by offering attrac- tive price points and promotional offers,“ Mishra said.

Samsung Electronics Co.
Ltd, for instance, will give out gifts worth `150 crore during its 45-day promotion Samsung Smart Utsav. The company is promoting its LCD and LED television sets by offering gifts like 50 blockbuster DVD pack, 3D titles, DVD and Blu-ray play- ers, or a Samsung Soundbar.

Assured cashback of denomi- nations between `200 and `15,000 are also available on the purchase of goods such as washing machine, air conditioner, microwave, etc. The company did not offer any promotions last year.

Mahesh Krishnan, vice-presi- dent, home appliances, Sam- sung, is confident of Samsung performing better than the in- dustry as a result of a better and bigger product line-up.

He said although the buying cycle for the industry was uneven, traditionally demand tends to go up during the festival time as companies give out bo- nuses and gifts are exchanged.
“This should facilitate a positive consumer sentiment and bring in greater sales for us", he said.

Meanwhile, Japanese brands such as Sony India Pvt. Ltd, a unit of Japan's Sony Corp. and Panasonic Corp. are eyeing better market shares and sales.

Sunil Nayyar, senior general manager, sales, Sony India, said LCD and LED TVs would be the main growth drivers for the company as it expects to sell a minimum of 400,000 units.

Manish Sharma, director, sales and marketing, Panasonic India, is also expecting to dou- ble its revenue for the season to `1,000 crore from `550 crore last year.

The company has invested `100 crore in marketing this time over `65 crore last year during the same period. Panasonic's wide product portfolio and the focus on smaller cities would be its growth drivers, Sharma said.

(Source-: mintlive.com)