AC, fridge sales help consumer durables players stay cool

While television sales have remained flat in the first quarter of this year, the consumer durables sector has more or less staved off the kind of acute slowdown beleaguering many consumption-linked sectors, with cooling products such as air-conditioners and refrigerators proving to be sweet spots, clocking a double-digit growth in the first quarter.

“While many sectors are facing challenging times right now, electrical appliances seem to be showcasing an upward rising trend...The industry has witnessed bumper sales for all cooling appliances, including ACs, air coolers, refrigerators, fans, etc. in the last quarter due to such extreme weather conditions (extended winters followed by harsh summer) benefiting most players,” Anuj Poddar, Executive Director, Bajaj Electricals Ltd, told BusinessLine . The consumption pattern for the electrical appliances industry has been favourable compared to other industry segments, he added.

Overall, the industry experienced a growth of 20 per cent in the first quarter of the current financial year in the AC category, and a growth rate of around 12 per cent in the refrigerator category, said Kamal Nandi, Executive Vice-President and Business Head – Godrej Appliances, and President of Consumer Electronics and Appliances Manufacturers Association (CEAMA).

Discretionary spending

Nandi attributed the reasons for the flat sales in TVs to the shift of discretionary spending from TVs to ACs due to the hot summer, as well as the growing preference for mobile phones over TV as the primary media consumption. Even the cricket World Cup couldn’t boost the demand for TV sales, he said.

All industry players said the summer has been favourable for cooling products such as ACs and refrigerators. Unlike last year, which had unseasonal rains in pockets of the country during the peak summer season of April-June, this year has seen one of the harshest summers and hence suction of AC has been good, said Nandi.

B Thiagarajan, Joint Managing Director, Blue Star Ltd, the low penetration of ACs is another factor that led to its growth. This growth rate is also to be seen in the context of the growth last year for the industry, which was privy to multiple headwinds for like rising commodity prices, a volatile exchange rate and weak summers, he pointed out.

However, Poddar pointed out that the month of August has witnessed soft demand due to floods in various parts of the country. But, demand is expected to bounce back from September with the start of the festival season, he said.

Economic slowdown

Nandi also said that during July and August, in the overall consumer durables industry, the sales overview has not been encouraging, with a de-growth being seen across categories.

Given the economic slowdown being experienced by most sectors, the overall sentiment in the economy might impact consumer behaviour, he said.

The consumer durables sector, being discretionary in nature, has also faced purchase deferment, though not to the same extent as other sectors, affirmed Hetal Gandhi - Director, Crisil Research.

The recent announcements by the government aimed at boosting consumer and industry sentiment, like the immediate release of ₹70,000 crore to PSU banks, coupled with the repo rate cuts introduced earlier this month, will increase the liquidity in the market by enabling greater lending, said Nandi.

Positive consumer sentiments, which underpin people’s spending decisions, the shaping up of the monsoon, especially post the floods that ravaged several parts of the country, as well as how the employment generation will take place — as it determines consumption — are the three deciding factors for the industry, said Thiagarajan.

RBI’s accommodative stance

On the expectations from the festival season for the consumer durables industry, Gandhi said the RBI’s accommodative stance and surplus liquidity should improve monetary transmission and support consumption growth in the second half of the fiscal.

“After a slower first half, players, too, are expected to increase their promotional offers and provide various financing schemes to attract customers this festival season. We, therefore, remain cautiously optimistic for the sector in the second half. For fiscal 2020, we expect overall consumer durables volume growth to slow down by 200-300 bps from our earlier estimate to 6-7 per cent,” she said. The festival season sales account for around 21 per cent of the annual sales of the consumer durables industry.

Nandi said that due to delayed monsoon, worsened by its sluggish pace, the agricultural output is immensely affected. “The irregular rainfall has led to postponement of sowing of paddy. There has been crop washouts as well due to excessive rainfall in some parts of the country. With the slack in agricultural output, and hence a decrease in the disposable income, consumer durables industry may mimic the downward trend, following the suit of other allied industries,” he cautioned.

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