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Harish Damodaran

Recently in Stockholm

AB Electrolux, the world's largest manufacturer of powered household appliances, does not expect its Indian operations to turn around till the second half of 2005.

"The positive results from our ongoing restructuring programme in Electrolux Kelvinator Ltd (EKL) should start showing by 2004, culminating in profitability of operations by mid-2005", Mr Johan Bygge, Senior Executive Vice-President, AB Electrolux, told visiting presspersons here.

Mr Bygge, who also heads the $15-billion Swedish multinational's white goods operations outside Europe and North America (Electrolux Home Products International or EHPI), emphasised that EKL's current level of losses were "unacceptable". For the year ended December 31, 2002, the Indian subsidiary reported a net loss of Rs 170.33 crore on a total income of Rs 498.89 crore, with accumulated losses at Rs 320.92 crore.

According to Mr Johan Fant, Senior Vice-President (Finance & Strategy) of EHPI, recent restructuring measures at EKL included closure of its refrigerator plant at Nandalur (Andhra Pradesh) and compressor facility at Sanathnagar (Hyderabad), along with discontinuation of compressor production at Warora (Maharashtra). All these have entailed a manpower reduction of about 1,450, bringing down the employee strength to 2,100.

"While shutting down all our uneconomical units, we wish to simultaneously make our refrigerator plants at Shahjahanpur (Rajasthan) and Warora and the washing machine facility at Butibori (Nagpur) world-class", Mr Fant said. During 2002, EKL sold over 6.3 lakh refrigerators and 49,200 washing machines, corresponding to respective market shares of around 20 per cent and 5 per cent.

"These numbers will come down this year because of our cost cutting and restructuring operations. Our focus now is on bottomline rather than topline, quality and not volume of sales", Mr Fant noted. EKL intends to launch microwave ovens and air-conditioners during the current year itself.

EKL is currently marketing nearly 85 per cent of its refrigerators in India under the `Electrolux-Kelvinator' label, with only a few top-end frost-free models being retailed under the `Electrolux' brand. Besides, the company is also selling refrigerators under the `Allwyn' brand.

Similarly, while front-loading, fully automatic washing machines are being marketed under the `Electrolux' label, the lower end semi-automatic machines are retailed under the `Electrolux-Kelvinator' brand.

"Our idea is to ultimately sell all our products either under the Electrolux or Electrolux-Kelvinator stable. While Kelvinator is a recognised and strong local brand, making it suitable for double-branding with Electrolux, all other brands such as Allwyn will be phased out. On the other hand, new products such as ACs and microwaves will be sold exclusively under the Electrolux brand", Mr Bygge said.

The Indian market for refrigerators is currently estimated about 35 lakh units (valued at Rs 2,600-2,700 crore), while amounting to 12 lakh (Rs 800 crore) for washing machines, 8 lakh for ACs (Rs 1,000 crore) and 3 lakh (Rs 120-130 crore) for microwaves. "The ACs and microwaves for the Indian market will be initially imported from China and Brazil. Local manufacture will take off only after a certain crucial volume threshold has been reached", Mr Bygge informed.

AB Electrolux was looking at India not only as a market, but also a sourcing base. The Swedish corporation has only recently set up an international purchasing office near Delhi, for sourcing forging and casting materials, transmission products, metals and electrical components, plastic raw materials, etc. "The steel being used in our China facilities is imported from India", he pointed out.

However, he ruled out India becoming an export hub for finished products such as refrigerators or washing machines in the near term. "The logistic and infrastructural challenges in India are much higher than in China and Brazil. Besides, there are pending issues regarding control, resulting in the Indian subsidiary's operations not being really integrated to our group", he said. AB Electrolux now has a 76 per cent stake in EKL, with the Indian promoter (Mr Harish Kumar and associates) and the public/financial institutions holding 10 and 14 per cent, respectively.

"Although we would like to delist at some point of time, we don't see this happening soon", Mr Bygge added.

Where India stands in the Electrolux radar

AB Electrolux annually sells roughly 55 million appliance units worldwide, which, apart from refrigerators, washing machines, dishwashers, microwaves, cookers, ACs and vacuum cleaners, includes `outdoor' products such as lawn mowers, garden tractors and chainsaws. Or, as the President and CEO of the Swedish giant, Mr Hans Straberg, puts it, "twice every second, someone somewhere in the globe buys an Electrolux product".

Where does India figure in this picture? For a start, Electrolux's Indian subsidiary sold 6.84 lakh units during 2002, which accounts for less than 1.25 per cent of the parent's total worldwide volumes. Compare this to the 1.8 million units sold in Brazil and 1.1 million units in China.

What is more, China has been identified as a global manufacturing-cum-sourcing hub not just for refrigerators or washing machines, but also for chainsaws and other components that are not consumed in the country. Electrolux, in fact, plans to source products worth $ 1.2 billion over a three-year period from China, while no such target has been set for India.

Further, of the 6.84 lakh units sold in India, the bulk (6.3 lakh units) comprised refrigerators. But even here, Electrolux's refrigerator sales in India constituted only 6.3 per cent of the corporation's global sales of 10 million units.

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