White goods makers have diversified across consumer durables segments to improve topline and catch on to changing consumer preferences
Bajaj Electricals, the Shekhar Bajaj-led company, was known for its lighting business. In fact its advertisement “Roshani deta Bajaj” had made its bulbs a popular product in households. While it diversified into other home appliances such as toasters and mixer grinders, Bajaj continued to be most known for its lighting business.
That’s why in June when the company acquired Nirlep, a name synonymous with non-stick cookware, the Rs 42.5-crore move surprised many.
But for the company, Nirlep was a 'perfect synergic blend'. A name synonymous with non-stick cookware, Nirlep through its non-stick cookware, hard anodised cookware and pressure cookers could add value to the existing product offerings of Bajaj Electricals. In return, it would be able to gain access to the distribution network of the latter.
Anant Purandare, chief financial officer, Bajaj Electricals says that the idea is to look at segments where they see a business fit.
Bajaj Electricals is not alone in broadening its product portfolio to include seemingly unrelated products. Many of the companies were mostly known for one product. Voltas for air conditioners, Havells for fans, Syska for lighting solutions and V-Guard for stabilizers.
Over the last few years, each has diversified across consumer durables segments, to improve topline and gain and catch on to changing consumer preferences.
Coinciding with the festive season this year, Voltas launched a series of home appliances under the Voltas Beko brand. Through a tie-up with a Turkey-based Arçelik. Their JV Voltbek Home Appliances has introduced a wide range of home appliances which include refrigerators, washing machines, microwaves, and dishwashers.
Havells’s product basket too has gone through a drastic change. The company began operations in the country with its fans and lighting products. It slowly diversified into the switchgears and cables/wires business and later in 2017, it entered the white goods segment through the acquisition of Lloyd Consumer.
It’s not hard to see why these companies have entered segments that may not look like a natural extension of their existing products.
As per industry reports, the consumer durables market in India is slated to grow at 10-12 percent per annum. The white goods market in India is currently valued at about Rs 50,000 crore.
During the last 10 years, the Indian major domestic appliances market grew by nearly 9 percent (CAGR), surpassing the overall 3 percent growth of global white goods market. This includes products from both Indian and international companies.
That is an outlook that is much more optimistic than that of some of the products that these companies were earlier selling.
Most Indian white goods brands were known for a fixed set of products. But more multinational companies entered the market, domestic players realised this was an opportunity that they couldn’t miss.
With the Indian market getting more brand conscious, appliance makers also want to be present across product segments. Further, with production costs on the rise across business segments, it is imperative that there is a diversification of business segments for the entities.
Minor to major: The V-Guard story
One of the most dramatic transformation is that of the Kerala-based V-Guard.
The company was happy being the largest seller of stabilizers in Kerala and in some other southern markets. But a change in guard at the top, and the realization that it needed to diversify to survive and grow, V-Guard shifted to offer products across the consumer appliances space.
Mithun Chittilappilly, MD, V-Guard Industries said that in their business, diverse consumers have different product and convenience needs that V-Guard now has a large product portfolio which addresses a variety of customer needs, at various price points.
“Product diversification strategies are also aimed at reducing the impact of volatile external market environment on our revenue. Our product mix includes mass market as well as niche market products. We continue to technologically upgrade our products, as well as launch new, smart household solutions, so as to create product differentiation as well as build competitive advantage,” he added.
V-Guard has already entered segments like gas stoves, air cooler, wires/cables, fans, rice cookers as well as mixer grinders.
Chittilappilly explained that their electricals segment (house wiring cables, pumps, switchgears and modular switches), segment contributed 43.8 percent to total revenue in FY18. Apart from this, the consumer durables segment that includes fans, water heaters, kitchen appliances and air coolers segment accounted for 24.8 percent of total revenue in FY18.
The inorganic route
The acquisition route is the most favoured route to diversify. But is it the most successful?
Lloyd Consumer, which is now part of Havells, posted a decline of 9.6 percent year-on-year (YoY) in profit before tax at Rs 47.62 crore for the September quarter. The revenue was down 4.4 percent YoY at Rs 257.85 crore in Q2FY19 as unseasonal rains hurt air-conditioner sales.
But the management is looking at a longer term impact.
During a recent call with analysts, Anil Rai Gupta, chairman and managing director, Havells, said that one of the biggest benefits of having Lloyd has been the expansion of this brand into many new channels hitherto not there.
“Lloyd was more of a distribution brand going into retail outlets, but now it does across categories of modern format retail, regional retails. So I feel that our shelf space has increased quite a bit in the last one year and it is growing every day,” he added. With Lloyd coming as a part of Havells there is a big confidence booster to the trade, according to him.
In FY18, electrical consumer durables constituted 23 percent of the revenue, cables accounted for 39 percent of the revenue, switchgears was 21 percent while lighting & fixtures were 17 percent. With products like air-conditioners and washing machines have low penetration and high potential for growth, it is expected that Lloyd would help them gain additional market share in the home appliances category where Havells has less than 5 percent share.
Similarly, Bajaj Electricals saw a 25 percent jump in its revenue in the electrical consumer durables to Rs 642.29 crore in the September quarter. The Nirlep acquisition acted as a positive for the company which earlier had EPC as the major source of revenue. While EPC still is the largest, consumer durables is the second largest.
TTK Prestige which already is a large player in the kitchen space also sells home-cleaning products including electric mops. The company is now scouting for acquisitions to expand its product portfolio. This could include kitchen as well as non-kitchen product segments.
Entering a completely new business segment is a risky proposition so an acquisition makes better business sense.
But a lack of acquisition hasn’t held back some. Syska which was synonymous with LED lighting entered the electric trimmers’ space as well as electronic accessories like Bluetooth speakers, wires and cables, and fitness bands. Now, it is also diversifying into the smart homes category.
Gurumukh Uttamchandani, Executive Director, Syska said that the smart home segment is grossly under-penetrated in the country. By making an entry into this space, the company wants to have the first-mover advantage.
“We will focus on smart electrical appliances where we have a technical know-how and ability to manufacture,” he said.The diversification helps consumer durables companies to spread their costs at a time when margins are coming under pressure. Higher taxes (GST), rising fuel rates and increase in customs duty for products such as refrigerators, air-conditioners and washing machines, have increased costs. At this juncture, companies want to diversify to not just to expand the revenue base but also minimise the production losses.