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Stiff competition hits sales realisation of white goods: ICRA

Stiff competition hits sales realisation of white goods: ICRA

Author | exchange4media News Service | Tuesday, Jun 29,2004 8:08 AM

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Stiff competition hits sales realisation of white goods: ICRA

Intense competition in the white goods category seems to have an impact on the average sales realisations of the consumer durables industry. This despite the industry benefiting from a reduction in the excise and customs duty rates for the segment.

According to an ICRA analysis, ``The industry has benefited from a reduction in the excise duty rates for white goods. Excise duty, as percentage of gross sales, has declined to 8 per cent in financial year (FY) 2003 from 13.4 per cent in FY 1998. However, the reduction in excise duty has been accompanied by general reduction in average sales realisation.''

A look at the trends in the sub-segments reveals that average sales realisation for refrigerators have been irregular. It has been in line with the changing strategies of players, ICRA states. The figure for refrigerators rose in FY 2000 and FY 2001, which could be explained partially by the increase take-up of frost-free (FF) models, the analysis said.

"However, with the entry of multinationals during the mid Nineties, the realisations fell again in FY 1998. With the foray of multinationals, most of the Indian players lowered their product price to protect their market shares. Besides, the stagnation of the market during 1999-2001 has resulted in a decline in the average realisations," ICRA pointed out. For the refrigerators segment, realisations have also declined because of excess capacity and intense competition, it said.

Realisations on washing machines have also shown a declining trend over the past few years. "The rise during FY 1998 and FY 1999 was mainly because of a market shift from price-driven to value-driven competition. However, the entry of new players and intense competition has resulted in stagnant average sales realisations during the last three years," ICRA analysis revealed.

The white goods sector as a whole also saw fluctuations in the operating margins. According to ICRA, the high increase in cost of sales resulted in a decline in operating profits and operating margins. The operating margins declined to 1.5 per cent during FY 2003 from 10.2 per cent in FY 2001. The operating margins declined sharply since FY 2000 because of increased competition resulting in increased employee costs and selling, general and administrative expenses. While employee expenses increased to 8.9 per cent during FY 2003, selling and administrative expenses increased to 20.4 per cent during the period, the analysis pointed out.

Further, because of lower operating margins, the net margins of the players turned negative during FY 2002 and FY 2003. Also because of net losses, the net worth of white goods manufacturers has suffered erosion, ICRA said.

Electrolux Kelvinator Ltd (EKL) reported net losses of Rs 170.3 crore during FY 2003. Two BPL Group companies - BS Appliances and BS Refrigerators — also reported net losses during FY 2003. Whirlpool of India Ltd, which had after incurring a net loss of Rs 14.8 crore during FY 2000, reported a net profit of Rs 20.5 crore during FY 2001. However, its net profits declined to Rs 8.6 crore during FY 2003.

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