Just about when everybody thought that the war for durability in the Rs 25,000-crore consumer electronics industry in India had been fought and won, the industry seems to be gearing up for another battle. On the face of it, nothing seems to have changed, not the game, nor the players and not even the prize. The industry continues to grow sluggishly, an 8 per cent compounded average growth rate (CAGR) between 2000 and 2004 (China grew 14 per cent CAGR during this period), LG and Samsung continue to rule the market, accounting for around 50 per cent of the total Rs 25,000-crore industry and the other Indian as well as multinational players like Videocon, BPL, Mirc Electronics, Whirlpool, and Sony continue to play catch-up. Under the surface though, things are stirring.

For one, the also-rans are refusing to play their part and are making a strong comeback bid. "It is not for nothing that the Devil (a character that represents brand Onida) is back," gushes Gulu Mirchandani, Chairman and Managing Director (MD), Mirc Electronics. "He is here to rule the market again." Apart from televisions, where it has historically held its own against competition, Mirc is making an aggressive play in categories such as washing machines, air conditioners, microwave ovens and DVDs. Then, says Mirchandani, there are exports. He claims to have sold between 100,000 and 150,000 colour televisions (CTVs) each in Ukraine and Russia last year, and hopes to translate this into a competitive advantage in the Indian market.

Venugopal Dhoot Chairman/Videocon "If there is one player that will thrive in the Indian market, other than the Koreans, it is Videocon"

BPL Ltd, which ruled the CTV market in India till early 2000 and then slipped into heavy losses (the net loss stood at Rs 214 crore in 2003 and Rs 74 crore in 2005), has formed a 50:50 joint venture (JV) with Japan's Sanyo Electric. The latter has committed $100 million (Rs 450 crore) to its Indian operations. The JV has launched CTVs, LCDs and plasma screens under the Sanyo and BPO brand names and is also foraying into refrigerators, washing machines and DVDs. "We intend to be a Rs 2,000-crore venture by 2009 with a considerable market share in all segments," says Ajit Nambiar, Chairman and Chief Executive Officer, Sanyo BPL.

Videocon Industries, another leading Indian player that got battered during the late 90s and early 2000s, boasts revenues of Rs 4,500 crore today. The group's oil business contributes significantly to this, but the consumer electronics business is thriving, too. Chairman Venugopal Dhoot identified a different route to growth: acquisition, of flagging brands such as Sansui, Akai, Allwyn, Kelvinator, Hyundai, Toshiba and Electrolux in the domestic market, and of manufacturing facilities such as French electronics major Thomson's colour picture tube one, globally. "If there is one player that will thrive in Indian market, besides the Korean majors, it is Videocon," says Dhoot.

Whirlpool India is another company, which after a long cold winter, is getting back into shape. The company, which recorded a net loss of Rs 38 crore in 2005-06, recently announced a $20-million (Rs 90 crore) investment for 2006 and 2007 and launched several new products. The company, says Arvind Uppal, its Managing Director, is committed to India. Then, there are others like Godrej Appliances, Sony, Haier, Sharp, Hitachi and various other smaller companies that are aiming to corner some share in the industry.

Gulu Mirchandani Chairman & MD/Mirc Electronics "It is not for nothing that the Devil (a character that represents Onida) is back. He is here to rule the market again"

All This And No Growth

These ambitious plans and strategies would not seem misplaced if the consumer electronics industry were growing the way other industries are. Last year, when GDP grew by around 8.1 per cent, the stock markets boomed and most industries, even those that had been in dire straits, like fast moving consumer goods, grew at between 15 and 30 per cent, consumer electronics was one sector that grew only 5 per cent. In terms of value, the biggest constituent of the segment, CTVs, actually saw a decline (see State Of The Market). Nor are growth estimates for the future any more sanguine. According to market research agency Datamonitor, the industry is likely to grow around 7.7 per cent CAGR for five years ending 2009.

There are many reasons for sluggishness in the industry; some immediate and others, historical. Most people attribute last year's slow growth to two factors-confusion regarding value-added tax (vat) and a surge in stock markets. "Confusion regarding vat in the first quarter last year took a heavy toll on sales," says K.R. Kim, President, LG Electronics. Then, experts point out an intriguing correlation between stock markets and consumer durables industry. "It has been observed that whenever stock markets or real estate sectors are booming, consumers tend to postpone their consumer durable purchases and invest their money in these assets," says Bhuwan B. Singh, Director (Client Service), org-GFK.

Then, there are historical reasons. When the government opened up the sector, recalls Mirchandani, incumbent players "were not ready for competition and most of them died or are still bleeding". Videocon's Dhoot holds heavy taxation responsible for industry's woes. "Total tax incidence in India even now stands at around 25-30 per cent, whereas the corresponding tariffs in other Asian countries are between 7 and 17 per cent," he says.

CONSUMER DURABLE STOCKS Children Of A Lesser Boom

Consumer durables is one sector that hasn't benefited from the bull run on the bourses. All consumer durables stocks, save Videocon, remain totally untouched by the boom, and trade between Rs 26 and Rs 40. "Margins in this business have been under tremendous pressure and bottomlines have not been growing," says Ambareesh Baliga, Vice President, Karvy Stock Broking. Videocon Industries is the only company quoting a respectable Rs 449, but an analyst points out that the stock regained its buoyancy only after Videocon International's merger into the company. Gulu Mirchandani, Chairman and Managing Director, Mirc Electronics, proffers another reason for investor apathy. "If the market leaders (read LG and Samsung) had been listed, the sector could have attracted investors."

THE OTHER ONES

Salora's Jiwarajka: Knows the hinterland The India that lives in its villages still remains relevant for some consumer durables companies. This India, at least a large proportion of its constituents, still buys black and white TVs and doesn't know what flat screens are. As for brands, it's a different world altogether. Brands such as Texla, Salora, T-Series, Weston and Oscar compete with LG and Samsung in these markets (and in several, it is the better-known firms that are absent). The 'bit players' together account for about 8-9 per cent of the TV market (both CTVs and B&W TVs; some two million B&W TVs were sold in 2005-06). "We don't compete with the LGs and Samsungs. We cater to the non-metro market that we know very well and are in a position to serve very well. We'll continue to be in business because there is demand for our products and we enjoy our customers' trust," says Gopal Jiwarajka, Managing Director, Salora International Ltd, a mid-sized conglomerate, which sells about 100,000 CTVs a year (net sales of Rs 584.26 crore and net profit of Rs 10.7 crore in 2005-06). The company has recently more than doubled its manufacturing capacity and tied up with Japan's TEAC Corporation to launch TEAC-branded audio-visual products in India, including LCD and plasma TVs. -Kapil Bajaj

Poor infrastructure is another reason that seems to have held back the industry. "Regular power supply is imperative for any consumer electronics product. But that remains a major hiccup in India," says Ravinder Zutshi, Deputy Managing Director, Samsung.

Ajit Nambiar Chairman & CEO/ Sanyo BPL "We intend to be a Rs 2,000-crore company by 2009 with a considerable market share in all segments"

Indeed, over 80 per cent of the rural market in India remains irrelevant for the industry because of these reasons. But the fact remains that these problems are not going to be resolved in the near future. And companies will have to factor them in when they draw new growth plans. Which they have now done. Shorter replacement cycles, especially in urban areas, also give companies cause for hope. Over the next few years, the topography of the industry will likely change, with some companies gaining at the expense of others. Eventually, however, the market itself will grow, as rural markets evolve and companies create specific products for them.

The Threat Of Retail

There is another imminent threat for the industry, the emergence of organised retail. "World over consumer electronics is used as a loss-leader category to woo consumers," says Ireena Vittal, Principal, McKinsey. "Retailers give consumers huge discounts on these products to win over consumers, which, in turn, means squeeze on margins." Vittal points to another trend that is sure to hit the players, that of organised retailers launching their own store brands. That, in fact, is already happening. Electronic Bazaar, the consumer electronics division of the retail chain Big Bazaar, has started importing air conditioners and microwave ovens from China and is selling them, under the brand name Koryo, at prices that are over 40 per cent cheaper than those of competing products. "Initial response to these products has been quite encouraging," says MD Kishore Biyani. "We intend to import other products like TV and washing machines soon."

Kishore Biyani Managing Director/ Future Group "Initial response to ACs and microwave ovens imported from China has been quite encouraging. We intend to import other products soon"	R. Zutshi Deputy Managing Director/ Samsung "The Indian market remains heavily under-penetrated, which is a big opportunity for all players"

Mukesh Ambani's Reliance Retail is also said to be exploring such opportunities. In fact, the group is said to be in talks with some companies that neither have any manufacturing facility nor a strong distribution network in the country, but are keen on a presence here. "There are companies that can take advantage of the free trade agreement (FTA) route and import their products to India and then, sell them through us without making any ground-level investments," says a senior executive at Reliance Retail. To be sure, companies like Hitachi, Sharp and TCL Holdings are already looking at exploiting the FTA route. "We are looking at increasing our market share in CTV, LCD and plasma screen business," says Prasun Banerjee, Vice President (Sales and Marketing), Sharp India. "We would largely be importing these products, making use of the FTA route."

THE INDIAN REVIVAL

BPL Ltd: Has formed a 50:50 joint venture with Japan's Sanyo Electric, which is investing $100 million (Rs 450 crore) in Indian operations; looking at global markets; claims to be exporting to 30 countries already; has targeted Rs 2,000 crore in revenues by 2009. Videocon Industries: Chairman Venugopal Dhoot has been on an acquisition binge (brands such as Kelvinator and Electrolux in India; French electronic major Thomson's colour picture tube business) and intends to beat the Koreans in their volumes game. Mirc Electronics: Gulu Mirchandani, the Chairman and Managing Director, feels that a larger product portfolio, extended presence in high growth segments like DVD players, microwave ovens, air-conditioners and exploring under-penetrated global markets, like Russia and Ukraine, will help. Godrej Appliances: Thus far, had only refrigerators, washing machines and air conditioners in its portfolio; now planning to enter categories such as microwave ovens and DVD players, maybe even televisions; exports is an immediate target.

AFTER-SALES SERVICE Not Quite Sell And Forget

Salora's Jiwarajka: Knows the hinterland Lifecycles may be falling, and consumers may be replacing products far more frequently, but that hasn't changed the contours of after-sales service in the consumer durables industry. Anecdotal evidence on the indifference of companies to faulty products and aggrieved consumers abound with the popular opinion being that companies consider their time better spent selling products rather than servicing them. Girish V. Rao, Vice President (Sales and Marketing), LG Electronics India, believes that this isn't quite true. "It is a misconception that after-sales service is becoming irrelevant or that the industry can afford to ignore it." "At LG," he adds, "we see it as one of the differentiators of our business from the competition's." Rao is right: with replacement cycles becoming shorter, companies should do everything in their powers to keep consumers happy (a happy consumer could well pick the same brand when it is time to do so). Only, not too many consumer durable manufacturers seem to have realised that. Result: some outsource their service function and others appoint franchisees to handle it. -Kapil Bajaj

It is not that the players are oblivious to these challenges; they have no option but to look at the brighter side of the picture, which in India's case is its potential. "The Indian market remains heavily under-penetrated, which is a big opportunity for all players," says Zutshi.

K.R. Kim President/LG Electronics "In the next two to three years, half the players will be pushed to fringes again. Only two to three players will survive in each category"

Then, foraying into rural markets has a considerable cost component attached to it. Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also spend on transportation for moving inventory. Even LG and Samsung, which are touted as having the largest distribution network in the country, have a direct presence only in 15,000 to 18,000 of the around 40,000 retail outlets (for consumer durables) in the country.

Players admit that the increasing competition and new challenges will lead to another phase of consolidation with some losing and others winning. Early indications of that are already visible. The buzz in the market is that Samsung incurred losses (around Rs 80-100 crore) for the first time in 2005. Zutshi, however, refutes this. "Our profits did take a hit last year, but there were no losses." Whirlpool India, Godrej Appliances and BPL Ltd, companies making a comeback, aren't out of the woods yet. LG's Kim says that in the next two to three years "half the players will be pushed to fringes again". "Only two or there players will survive in each category."

And who are the players who will survive? Only those who are resilient, committed to the industry and Indian market and at the same time, are looking at being globally relevant, is the chorus.

-additional reporting by Kapil Bajaj