25 Apr 2017
Brief: Consumer Durables category expected to grow by 10% in FY18 and beyond; Strong push emanating from NITI Aayog’s Vision 2031-32 plan, which can catapult sales and maintain sector growth for the next 15 years.
While preparing roadmap for 2031-32, the NITI Aayog has targeted every Indian household to have access to housing, vehicle and air-conditioner. As enabling frameworks, every household will also have access to electricity, LPG, digital connectivity and toilet. Moreover, basic infrastructure facilities, modern network of roads, railways, air connectivity, and waterways are also planned all across the country. The vision document of the NITI Aayog indicates that a robust growth in consumer goods category can be expected. We have seen a positive correlation between GDP growth and sales of consumer durable category and contend that the narrative will build upon the already strong relation.
Production of the overall durable goods category is growing by nearly 5% in FY17 (YTD) as against 11.4% during the corresponding period, the previous year. This growth is in line with 7% growth average recorded by the Indian economy. In December 2016, the category, which had been recording a healthy growth on the back of robust consumer confidence and economic growth had relented after 18 months. In December 2016, the category contracted by (-) 10.3%; an unfavorable base effect was one of the reasons for the fall. However, as compared to August and October growth rates, which managed to remain positive despite much higher bases- December’s performance has been genuinely dismal. Q4 FY17 has been recording positive numbers as of date but growth has been lower than anticipated and the effects of demonetization are still prevalent, beyond Q3.
While considering sub categories, production of air-conditioner has been growing on an average by 10% for the last five years. In FY17, production growth of this category is recording a solid growth of 14.5%. Similarly, automobiles, tyres, refrigerators have recorded solid growth in the last financial year and are continuing the momentum. Production of color TV set, in contrast, has witnessed negative growth of (-) 5.7% in the past two years. However, this negative growth can be attributed to excess inventory in the system; as inventories (especially finished goods to sales) declines, we see an opportunity for related businesses.
There is immense potential in terms of untapped market and Census 2011 figures stand proof to the claims. As per the Census, only 21% of Indian own a two-wheeler while less than 5% own a car. Only 47% of Indians own a television and less than 68% have access to electricity for lighting. No more than 5% of Indians own any kind of air-conditioning, as things stand today. Therefore schemes such as access to electricity to all household will also augment new consumer base to the durables market and this will fuel further demand. In addition, introduction of GST will lower the cost of these categories as transport cost will have a positive impact. As Savings gives way to Consumption as a portion to GDP combined with per capita incomes trebling during the time, the Government’s vision document has set a clear path. SMERA believes that these developments will significantly influence the consumer durable segment and expects that it to grow by over 10% in FY18.