Supply growth is high across all the segments. But the organised sector has gained substantial market share from the unorganised segment in recent years. However, there are fewer players in segments like dishwashers and vacuum cleaners.

Cyclical and seasonal. Demand is high during festive season and is generally dependent on good monsoons.

Capital, distribution network, brands and ability to finance hire purchases.

Limited in view of intense competition and threat of imports.

High due to availability of many brands.

Competitive strategies revolve around strong brand differentiation and prices.

Since the prospects of the industry are closely linked to economic performance, in FY04, the country registered a GDP growth of 8.7% (Source: CMIE). This was led by significant growth in the agricultural sector and sustained performance by the industrial side as well. Since any rise in agricultural output is likely to have a lag effect on durables demand, starting 2HFY04, there were some visible signs of rebound. As is evident from the graph below, the consumer durable index witnessed a consistent rise throughout the year from its lows.

As far as key growth areas are concerned, the television segment witnessed a 64% rise in production in FY04. Though existing players have increased capacity, the rise in production was also on account of strong replacement demand and fillip provided by a low interest rate scenario. In the last two to three years, durable demand remained suppressed owing to a weaker agriculture sector performance. The pent-up demand has translated into higher growth in volumes in FY04.

Import duty on key inputs were reduced in the last budget. This is big positive CTV manufacturers and the foreign counterparts that source key components from the parent's global facilities. The reduction in customs duty and the overall decline in excise duty over a period of time have enabled organised players to gain market share. The gain in market share has also come about on account of steep fall in prices owing to competitive conditions.

The penetration levels across the segment in the industry continue to remain sluggish. To put things in perspective, penetration levels of televisions in India is just 24% as compared with 98% in China, 11% in Brazil, 235% in France, 250% in Japan and 333% in US. Refrigerators also have good potential for growth in view of a meagre 2% penetration levels. Infact, amongst all segment within the Indian consumer durable segment, penetration levels of TV is believed to the highest.

As per NCAER (one of the premier economic research agencies in India), the penetration of TVs is expected to increase almost three times by FY07 as compared to the FY99 level. Growth in even higher for other durable items like refrigerators and washing machines. The expectations are also on the premise that the consuming class, as a percentage of total households, is expected to grow at a faster rate. This would benefit the consumer durable manufactures.

('000*) 1998-99 2006-07 Category Rural Urban All India Rural Urban All India TVs (colour) 48 304 121 185 723 347 Refrigerators 35 335 120 65 717 262 Washing machines 10 167 55 20 399 135 Sewing machines 71 172 100 85 152 103	(m) 1998-99 2006-07 Category Rural Urban All India Rural Urban All India TVs (colour) 5.9 14.9 20.8 25.7 43.5 69.1 Refrigerators 4.3 16.4 20.6 9.0 43.1 52.2 Washing machines 1.2 8.2 9.5 2.8 24.0 26.9 Sewing machines 8.7 8.4 17.2 11.8 9.1 20.5
Source: NCAER, * households

In TV segment, the 14, 20 and 21 inches segments are expected to be the key contributors to the overall industry growth. In the air conditioner segment, room air conditioner market is growing at the rate of 18% per annum. Majority of the companies, understandably, have plans to focus on these segments.

Domestic AC manufacturers plan to beef up their distribution and service networks, while MNCs will leverage on their brands and invest in high-powered advertising. Given the fact that household penetration of ACs in the country is very low (0.5%), growth potential is enormous. As running costs of the AC are very high, manufacturers plan to introduce energy-saving models in future. Demand for ACs in the long run will be robust due to rising income levels and also due to higher computerization. Besides, air conditioners are no longer perceived as luxury needs.

There are more than a dozen companies operating in the white goods segment, which is witnessing excess capacity build-up in ACs, refrigerators, and washing machines. As a result supply will continue to outstrip demand. As has been the case in the last three to four years, prices would continue to remain depressed and margins will be under pressure. However, this not likely to discourage the MNCs from leaving the country as they have outlined ambitious plans for India and have made substantial investments. Indian manufacturers may find it difficult to keep up with sustained pressure from the MNCs and this segment could witness some consolidation in future. Our interaction with companies indicates that MNCs (especially the Korean majors) are eyeing market share in the initial phases as opposed to profitable growth.