Connect with us

Headlines Of The Day

Appliance makers gear up for festive season even as supply woes linger

Makers of televisions to air-conditioners are readying themselves for the festive season despite shipping congestion at Chinese ports reigniting fear of supply chain woes and threatening to derail recovery for the inflation-hit industry.

Appliance makers have planned new launches and much-awaited deals as they expect bumper sales this festive season, after drawing a blank for the last two years.

Most of the companies that BQ Prime spoke with said that they have hit the maximum stock level—the largest number of goods a company can store at the lowest possible cost—to cater to festive demand. But they are worried about a delay in deliveries scheduled for November-end. Shortage of products coupled with rupee depreciation could mean further price hikes.

“Manufacturers have enough inventory for now, but the fresh restrictions in China may lead to some serious concerns post-festive season,” Eric Braganza, president of the Consumer Electronics and Appliances Manufacturers Association, told BQ Prime.

“We expect that the availability of certain categories of air-conditioners, especially the 5-star ACs, will be under pressure because of a shortage of compressors and controllers. This could also lead to price escalation negating the benefits of easing commodities,” he said.

The Chinese city of Shenzhen, which still faces Covid-19 restrictions, plays an important role in television manufacturing as it’s a hub of electronic components, said Avneet Singh Marwah, chief executive officer at Super Plastronics Pvt., the exclusive brand licensee of Thomson in India.

“We are already seeing prices starting to go up again amid disturbance in the vessel movement, compounding the supply chain troubles,” he said.

If the situation persists, there could be price hikes of at least 10% in the last quarter of the current fiscal, Marwah said.

Currently, there is a delay of 45-50 day in deliveries as opposed to 27-30 days shipping time earlier due to port congestion, said Arjun Bajaj, director of Videotex International Pvt., which makes televisions for brands like Lloyd, Hyundai, Realme and Toshiba as well as its in-house brand Daiwa.

A Game Of Snakes And Ladders
According to Dinesh Chhabra, chief executive officer, Usha International Ltd., the journey of the consumer durable industry over the last two and a half years can be compared to a game of Snakes and Ladders.

“Each time we thought we were climbing up the ladder, up sneaked a snake threatening to bring all our efforts to nought—be it because of Covid-19 restrictions, war-led inflation or supply chain snarls.”

The industry has weathered supply chain turmoil that began last year partly by raising prices.

This year, too, the electronics and appliances manufacturers have increased prices to the tune of 7-8% to offset impact of commodity inflation, said Braganza.

Consequently, demand remained tepid in the first half of the year leading to an inventory glut. Demand did pick up mid-August onwards, according to companies, on the back of easing input prices, and as brands rolled out discounts, to reduce inventory levels. Several companies are also rolling out easy finance schemes in order to ensure that consumers are not burdened to shell out large amounts of money. But, equated monthly installments would go up if the Reserve Bank of India, as widely expected, raises interest rates in the upcoming policy meet scheduled for Sept. 30, 2022.

Cautiously Optimistic On Festive Sales
Both Bajaj and Marwah said they are “well-covered” to cater to festive demand.

The festive season—which begins with Onam, is followed by Durga Puja and ends with Diwali—is crucial for the country’s Rs 75,000 crore appliances and electronics industry as it accounts for about 33% of the annual sales.

The companies expect demand to be driven by high-end products even as the mass segment is yet to recover, with deal-hungry middle class and lower middle classes delaying purchases.

Midway into the festive season, sales of firms like Panasonic Life Solutions India Pvt., Haier Appliances, Godrej Appliances and Samsung India underscore the trend.

The companies are expecting 10-35% higher sales compared to last year’s festive season and are cautiously optimistic about crossing pre-pandemic volume numbers.

Dealers, though, are “stocking with caution” and not building-in lofty levels of inventory, despite an improved demand scenario, in anticipation of further price cuts by brands as they look to reduce inventory levels, brokerage house Edelweiss Securities said citing channel checks.

Factors such as feeble growth in entry segment brands, weak rural versus urban demand, and a pricing moderation trend risks value growth of companies, given the entry segment accounts for a lion’s share across segments, noted Edelweiss.

“The new restrictions in China are posing a challenge… But we have learnt from our experience during the severe crisis last year and lined up raw material sourcing accordingly,” Gurmeet Singh, chairman and managing director, Johnson-Controls Hitachi Air Conditioning India Ltd.

Meanwhile, Hitachi and other companies are also working on reducing reliance on imports for components by half, riding on the product-linked incentive scheme.

“But import dependency cannot go away overnight. It will take years before we can actually say that PLIs have promoted local manufacturing and helped cut import dependence,” according to the spokesperson for a domestic home appliances and consumer electronics company, who spoke on the condition of anonymity. The spokesperson also said that “new investments in manufacturing remain subdued…it will come up only when the demand outlook looks durable.”

Based on an analysis of eight companies that account for half of the consumer durable industry’s revenue, Crisil estimates the sector’s revenues to rise 15-18% to Rs 1 lakh crore in FY23. Margins, however, will remain under pressure given runaway commodity prices of inputs like copper, aluminium, steel and polypropylene, but not to the extent of last fiscal when it fell by 180-200 basis points, it said.

Another reason for companies facing margin contraction is rupee depreciation, which will also shave off profitability as 45-50% of the raw materials are imported, the report said. Videotex’s Bajaj concurred. “While we have learnt to deal with the supply chain disruption having dealt with it since the initial Covid lockdown two years ago, the depreciation of rupee, which is directly impacting both working capital and margin, is our current major bottleneck.” Bloomberg

Click to comment

You must be logged in to post a comment Login

Leave a Reply



Copyright © 2022 TV Veopar Journal