MOSL: CONSUMER DURABLES-Festive season sales below expectations-Daikin turns into a ‘volume’ player

​CONSUMER DURABLES: Festive season sales below expectations; Daikin turns into a ‘volume’ player

We interacted with some of the largest electronics retailers in northern and western India to get a sense of festive season sales and competition across the white goods sector. Our key takeaways:

• Festive season sales subdued; higher-ticket products more impacted: This is more evident for higher ticket products (>INR45,000) such as premium LED TVs (43-inch and higher) and refrigerators; lower ticket products are doing relatively better. The festive season starts from mid-September and continues until Diwali (October/Early November). This year, festive season sales have been impacted by (a) pre-buying in June on account of clearance sales before GST, (b) subdued market sentiment, (c) liquidity crunch due to GST, and (d) online sales eating into offline sales. Inventory with retailers was back to pre-GST levels across most categories in August. However, weak secondary sales in August-September have led to high inventory and resultant cut in new purchases from manufacturers.
  
• Daikin turns into a ‘volume’ player: Daikin is no longer focused on the ‘premium’ segment. It is now focusing on the ‘mass volume’ segment, with AC prices in line with Voltas and cheaper than Blue Star (see Exhibit 1). Daikin has recently started its second manufacturing plant at Neemrana, doubling capacity to 1.2m/annum – this has probably helped it to attain economies of scale, in turn enabling it to match prices with the market leader in the industry.
  
• Inverter AC prices see a cut – at ~30% of industry volumes: Both Daikin and Voltas have cut inverter AC prices, with their 1.5-ton 3-star inverter ACs being priced in line with LG at INR38,000 (see Exhibit 1). LG had launched its 1.5-ton 3-star inverter (copper condensers) ACs at an aggressive price of INR38,000 (peers at ~INR42,000) in February 2017 and this is now being matched by peers. Voltas is also running an exchange offer on inverter ACs – customers get INR15,000 discount in exchange for their old ACs. This has led to increased customer demand for Voltas inverter ACs, which were absent earlier.