Overview of Indian Consumer Durables Market

Indias consumer market is riding the crest of the countrys economic boom driven by a young population with access to disposable income and easy finance options; the consumer market has been throwing up staggering figures. The market share of MNCs in consumer durables sector is 6.5%. MNCs major target is the growing middle class of India. MNCs offer superior technology to the consumer whereas the Indian complies compete on the basis of firm grasp of the local market, their well acknowledged branch and hold over wide distribution network Indian officially classifies its population in five groups, based on annual household income. These groups are LOWER INCOME, THREE SUBGROUPS OF MIDDLE INCOME, and HIGHER INCOME. Household income in the top 20 boom cities in India is projected to grow at 10% annually over the next eight year. This is likely to increase consumer spending on durables. With the emergence of concept such as quick and easy loan, zero equated monthly installment (EMI) charges, loan through credit card, loan over phone, it has become easy for Indian consumer to afford more expensive consumer goods.

KEY GROWTH DRIVERS FOR CONSUMER DURABLES

1.) Rise in disposable income 2.) Availability of newer variants of a product 3.) Product pricing 4.) Availability of financing schemes 5.) Rise in the share of organized retail: Rise in organized retail will set the growth pace of the Indian consumer durables industry. According to a working paper released by the Indian Council for Research on International Economic Relations (ICRIER), organized retail which constituted a mere four percent of the retail sector in FY07 is likely to grow at 45-50% per annum and quadruple its share in the total retail pie 16% by 2011-2012. The share will grow with bigger players entering the market.

6.) Innovative advertising and brand promotion 7.) Festive season sales

Income growth will the key driver of demand for consumer durables

Demand for consumer durables in India has been growing on the back of rising incomes; this trend is set to continue even as other factors like rising rural incomes, increasing urbanisation, a growing middle class, and changing lifestyles changes aid demand growth in the sector Consequently, industry analysts expect the sector to post a CAGR of 15.0 per cent over 2010-15 Significant increase in discretionary income and easy financing schemes have led to shortened product replacement cycles and evolving life styles where consumer durables, such as ACs and LCD TVs, are perceived as utility items rather than luxury possessions Growth in demand from rural and semi-urban market to outpace demand from urban market for consumer goods Per capita income is expected to expand at a CAGR of 7.9 per cent for the period 201015

Rising per-capita income in India

3,000 2,500 2,000 1,500 1,000 500 0 30% 25% 20% 15% 10% 5% 0% -5%

Per capita income, USD, LHS

Source: IMF, Aranca Research *IMF estimates

Annual growth rate, RHS

MAJOR HURDLES AND CHALLENGES PLAGUING THE INDIAN CONSUMER DURABLES SECTOR
1.) 2.) 3.) 4.) 5.) Threat from new entrants, especially global companies: Rivalry and competition Potential markets remaining yet untapped Threat from substitute products/services Customer power with respect to availability of choice

Recent Investments by Key Players

SWOT ANALYSIS
STRENGHTS WEAKNESS

1. Presence of established distribution network in rural and urban areas. 2. Presence of well known brands. 3. Both organised and unorganised sector's market share has increased.

1.Demand is seasonal and high in festive season. 2.Poor government spending on infrastructure. 3. Low purchasing power of consumers

1. In India, penetration level of white goods is lower than the other developing countries. 2. Unexploited rural marketing. 3. Ease in availability of finance. 4. Increasing urbanization. 5. Increase in the income level of consumers.

1. Higher import duties on raw materials. 2. Cheap imports from China, Europe and other Asian countries.

OPPORTUNITIES

THREATS

Two key retail related FDI policies that will impact consumer
51% FDI in multi brand retail Status: Approved Minimum investment cap is USD100 million 30 per cent procurement of manufactured or processed products must be from SMEs Minimum 50 per cent of total FDI must be invested in backend infrastructure (logistics, cold storage, soil testing labs, seed farming and agro-processing units) Removes the middlemen and provides a better price to farmers Development in the retail supply chain system 50 per cent of the jobs in the retail outlet could be reserved for rural youth and a certain amount of farm produce could be required to be procured from poor farmers To ensure the Public Distribution System (PDS) and Food Security System (FSS), government reserves the right to procure a certain amount of food grains Will cut agricultural waste as mega retailers would develop backend infrastructure Consumers will receive higher quality products at lower prices and better service

100% FDI in single brand retail Status: Policy passed

Products to be sold under the same brand internationally Sale of multi brand goods is not allowed, even if produced by the same manufacturer For FDI above 51 per cent, 30 per cent sourcing must be from SMEs Consumerism of the retail market Any additional product categories to be sold under single brand retail must first receive additional government approval

The Road Ahead

Financial Analysis of LG Electronics Financial Ratio Analysis Findings Suggestions