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Price rise pinch: White goods see worst year as component prices skyrocket to all-time high in 2020

Component rates rose across appliances leading to a 20-30 percent rise in product prices. With COVID-19 fears intact, sales also remained muted for consumer durables firms.

December 29, 2020 / 02:43 PM IST

Typically, the beginning of the year (January) and onset of the festive season from Onam onwards (August-December) bring attractive deals for customers eyeing a home appliance. But 2020 was different because it was not just a dull year amidst Coronavirus-led disruptions, white goods’ prices were at an all-time high due to component shortage and price increases.

Among the appliances, the television segment was the worst hit due to rise in panel prices and shortage in components. An added concern was the restriction on import of colour televisions into India and re-imposition of 5 percent customs duty on open-cell panels.

For televisions, the price rise in panels still continues leading to a further increase in TV prices from January 2021.

"There is an increase of 200 per cent in panel prices and despite the increase, there is short supply. Due to no alternative of panel manufacture at the global stage, we are dependent on China. So, Thomson will increase the android TV prices by 10 per cent from January," said Avneet Singh Marwah, CEO SPPL. SPPL is the exclusive brand licensee of Thomson and Kodak in India.

However, this was not the only category that saw prices increasing sharply. By the end of November, products like microwaves, washing machines and refrigerators also rose by 18-20 percent due to a rise in prices of aluminium, copper, foam, plastic, steel and zinc by almost 40 percent. These metals and plastic/foaming agents are the key components of consumer durables.

Even though the majority of appliance companies manufacture products in India, key components like panels, air compressors (for ACs and refrigerators) and hydraulic motors are imported from abroad.

Electronic appliances dealers are of the view that there could be a second round of price increase in the end of January by 8-10 percent for these appliances. This is especially true for air conditioners and refrigerators, the peak sales season for which is February to May.

"This was a year when white goods saw close to 40-45 percent price increase cumulatively which is an all-time high record for the sector. This was a result of multiple factors including component price rise, government import restrictions and COVID -led lockdown. The PLI scheme may also not lead to a sudden revival," said the head of home appliances at an electronics goods firm.

The cabinet have its approval to the production-linked incentive (PLI) scheme on November 11. The total allocation under PLI would be Rs 1.46 lakh crore over five years, according to the government statement. Of this, Rs 6,238 crore has been set aside for white goods including products like air-conditioners and LED lights.

Large appliance makers in India include Samsung, LG, Sony, Voltas, Havells, Godrej Appliances, BSH Home Appliances, Hitachi, Haier and Bajaj Electricals among others.

TV makers face the worst pain

When the COVID-19 outbreak was first reported in Wuhan, China in the last week of December 2019, TV makers were the most worried. Since China supplies panels which are the key components to manufacture televisions, there were fears of raw material shortage.

Their worst fears came true when in January production came to a standstill across manufacturing hubs in China. This led to an acute shortage of components like panels leading to a price increase of 10 percent in February 2020 itself.

As the year progressed, India also imposed a lockdown from March 25 halting production activity across the country. On one hand, there was a component shortage while on the other there was a scarcity of TVs as well.

Amidst manufacturing slowly crawling back to normal from June onwards, a July 30 notification by the Directorate General of Foreign Trade (DGFT) placed import of colour televisions of all sizes in the restricted category. High-end television sets that are 80 inches and above are typically imported from other markets.

During the same time, anti-China sentiments stayed strong with the India-China clash in Galwan Valley leading to the death of 20 Indian soldiers. Components and finished goods from China were under thorough scrutiny since then leading to production delays in India.

Another shocker came in September in the form of rise in TV panel prices ahead of the Diwali sales season. This led to an almost 25 percent price increase of televisions.

This was quickly followed by the re-imposition of the 5 percent customs duty on open cell from October 1 onwards. Meanwhile, the rise in panel prices continued leading to TV prices continuing to move northward.

Other appliances suffer too

On one hand while component price increase affected makers of refrigerators, ACs and washing machines, some import restrictions also added to the pain.

In the beginning of the year, there had been component shortage for ACs and refrigerators due to the China production shutdown. Manufacturing resumed from June onwards only to face component delays at port as a consequence of tighter scrutiny of Chinese components.

Product shortage was seen across dealers and hence a 3-4 percent price increase was reported for these products in July.

Appliance makers had pinned hopes on Onam 2020 to revive the business. But sales remained muted due to sudden lockdowns being imposed across Kerala to manage COVID-19 cases.

In stark contrast to the previous years, flash sales and steep discounts also were minimal this year as consumer durables firm attempted to recover revenue loss.

During the same time (October 2020), DGFT banned import of fully-built air-conditioners from abroad.  This had a partial impact on inventory since 35 percent of ACs are completely imported into India.

Exact sales numbers of each product are not disclosed by appliance makers. However, brokerages and market research firms bring out reports in January based on interactions with dealers and company officials.

Mixed bag for profits 

It was a mixed bag as far as profits for the listed electrical goods firms are concerned. Revival is expected from Q3 onwards.

In the first quarter (Q1), Voltas saw a 30 percent YoY decrease in net profit at Rs 102.86 crore. Its net sales were at Rs 1,259.85 crore in June 2020, down 50.34 percent YoY.

In Q2, the net profit of consumer appliances brand Voltas declined 25.2 percent year-on-year (YoY) to Rs 80 crore in the September quarter (Q2). But its consolidated total income for Q2 was Rs 1,651 crore, a YoY growth of 10 percent.

In contrast to Q1FY21 when it reported consolidated net loss of Rs 16.60 crore (due to 53 percent slump in income), Bajaj Electricals was back in black in the September quarter (Q2). It posted posted consolidated net profit of Rs 53.11 crore compared to a net loss of Rs 32.54 crore in the year-ago period.

The total revenue from operations grew 11.1 percent YoY to Rs 1,217.71 crore in Q2FY21. For the quarter, Consumer Products (CP) segment earned total revenue of Rs 792 crore, which is a YoY growth of 12.9 percent.

Another major player Havells reported an 82 percent YoY increase in its consolidated net profit at Rs 326.36 crore for the July to September quarter (Q2). The company saw a one-time gain of Rs 43 crore on account of sale of un-utilised land and building at Greater Noida.

Revenue was up 12.3 percent YoY to Rs 2,539 crore in Q2 FY21. The company said that the consumer and residential portfolio registered mid-teens growth across segments. Here electrical consumer durables (ECD) was the bellwether.

Sales stay muted

Though there were expectations of ‘revenge buying’ by customers in the unlock phase, sales remain lower than expected. Customers flocked to e-commerce platforms for WFH appliances like mixer grinders, kitchen appliances and dishwashers while offline stores saw thin footfalls due to the virus scare.

Dealers also saw very few people turning up to stores during the festive season.

Madhavan Kurup, proprietor of Classic Home Appliances and Accessories stores in Kerala, told Moneycontrol that the Onam season had erratic schedules from the state government leading to a slump in sales.

Kurup added that a similar trend continued even during Christmas since there has been a sudden spurt in cases.

“We barely sold any appliances this season. Typically, it is atleast Rs 2-3 crore during the year-end sale,” he added.

Delhi’s Bharat Chopra who owns three electronics stores under Bharat Electronics at the Chandni Chowk market area said that customers are waiting for better deals, leading to an impact on the business.

“During Diwali sale, products are offered at 30-30 percent discount. This year, there were purely EMI offers and some cashbacks which dissuaded buyers,” he added.

Every year, sales worth Rs 4,500 crore are clocked between August and November. This accounts for almost 50 percent of the annual sales for consumer durables firms. This year, e-commerce sales picked up pace and represented close to 30 percent of total industry sales.

This year, sales were close to Rs 3,200 crore with online accounting for 70 percent of the overall sales.

The white goods market in India, currently worth about Rs 60,000 crore, is growing around 15 percent every year. However, 2020 has been different as Covid-19 led to a 65 percent decline in revenue in April, May and the first half of June. Appliance makers were hoping to make up for the lost sales during Diwali.

M Saraswathy
M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.
first published: Dec 29, 2020 02:43 pm