The Hindu Business Line : Despite higher sales, consumer durables to report low profits

White goods manufacturers have posted a 15 per cent growth in sales in 2008 (up to November) over 2007, thanks to growth in frost-free refrigerators and washing machines. The low penetration of these products (7-8 per cent of the potential market) is said to be the reason for the growth of demand for these products.

For sure, the current year’s growth rate is lower than what was witnessed in the previous years — 20 per cent in 2007. Yet, considering factors such as dearer money, limited finance options, early monsoon and the ‘meltdown mood’, a 15 per cent growth is heartening, say experts.

But the buoyancy in sales has at best helped preserve the bottomline. Cost pressures, arising out of higher prices of inputs such as steel, copper and polyurethane foam (used as lining in refrigerators), combined with the drooping rupee, pulled margins down, sources in the industry say. (Even after the recent drop in prices, they are still higher than their 2007-levels.)

Defraying costs

Major players including Samsung, LG Electronics, Godrej and Whirlpool raised prices by up to 7 per cent across categories so far, but that was inadequate to defray the higher costs.

According to Mr V. Ramachandran, Director (Sales and Marketing), LG Electronics India, most of the top-end models of washing machines, refrigerators and air-conditioners are imported as completely-built units or brought in as components and assembled here. As the rupee slid 38 per cent against the US dollar (Rs 39 a dollar in Nov 2007 to Rs 50.6 today), the landed costs of these products have gone up as much.

Even the products manufactured locally have imported components.

For these products, for every one rupee swing in the currency value, the cost of manufacture will correct by 0.65 per cent.

Any increase in price could not be passed on to the customer because of the stiff competition.

According to Mr Kamal Nandi, Vice-President, Sales and Marketing, Godrej Appliances, the “very short summer” this year further hit sales of refrigerators and air-conditioners. Godrej expects to achieve a turnover of Rs 1,800 crore as against Rs 2,000 crore last year.

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