A BRIEF REPORT ON

CONSUMER DURABLES INDUSTRY IN INDIA March, 2013

A brief report on Consumer Durable Industry in India

1. OVERVIEW OF CONSUMER DURABLES MARKET

1.1 Overview Growth of the consumer durables sector is poised Shares in the consumer durables market in India (FY11) for growth as disposable incomes grow. Also, increasing electrification of rural areas would augment demand. This sector attracted significant Rural, investments even during global recession. Rural 35% markets is expected to grow at a compound annual growth rate (CAGR) of 25 per cent from Urban, US$ 2.1 billion in FY10 to US$ 6.4 billion in 65% FY15. 100% FDI allowed in the electronics hardwaremanufacturing sector under the automatic route. The consumer durables market recorded revenues of US$ 7.3 billion in FY11. During FY03-FY11, the industry expanded at a CAGR of 12.2 per cent. Urban markets account for the major share (65 per cent) of total revenues in the consumer durables sector in India. Demand in urban markets is likely to increase for nonessential

products such as LED TVs, laptops, split ACs and, beauty and wellness products. In rural markets, durables like refrigerators as well as consumer electronic goods are likely to witness growing demand in the coming years. Private & Confidential Page 2 of 11 A brief report on Consumer Durable Industry in India

Size of the consumer durables market (USD billion) 8 7.3 7 6.3 6 5.2 4.7 5 4.2 3.8 4 3.5 3.2 2.9 3 2 1 0 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 * Latest data as available This sector is expected to post a CAGR of 15% over 2010-15. Growth in demand from rural and semi-urban market is estimated to outpace demand from urban market for consumer goods. Consumer durables market is estimated to expand at a CAGR of 14.8 per cent to US$

12.5 billion in FY15 (from US$ 7.3 billion in FY11). Rural and semi-urban markets are likely to contribute a majority of consumer durables sales. 1.2 Key Categories The Indian Consumer Durables segment can be segmented into three groups: White Goods Categories Brown Good Consumer Electronics

White goods Brown goods Consumer electronics Air conditioners Microwave Ovens TVs Refrigerators Cooking Range Audio and video systems Washing Machines Chimneys Electronic accessories Sewing Machines Mixers PCs Private & Confidential Page 3 of 11 A brief report on Consumer Durable Industry in India

Watches and clocks Grinders Mobile phones Cleaning equipment Electronic fans Digital cameras Other domestic appliances Irons

 DVDs Camcoders Brown goods

of the country

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A brief report on Consumer Durable Industry in India

Household Appliances Industry Size (in Rs Billion)

Indias domestic video, audio and gaming device market is expected to grow to a value of US$21.7bn in 2015. TV will remain the core product in this category, with sports events such as the 2011 ICC Cricket World Cup driving demand for TV set upgrades. 1.3 Market Share by Segments (Electronics)

* Latest data as available

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2. MAJOR PLAYERS

2.1 Samsung India Samsung India commenced its operations in India in December 1995, today enjoys a sales turnover of over US$ 1 billion in just a decade of operations in the country. Samsung design centres are located in London, Los Angeles, San Francisco, Tokyo, Shanghai and Romen. Samsung India has its headquartered in New Delhi and has a network of 19 Branch Offices located all over the country. The Samsung manufacturing complex housing manufacturing facilities for Colour Televisions, Colour Monitors, Refrigerators and Washing Machines is located at Noida, near Delhi. Samsung Made in India products like Colour Televisions, Colour Monitors and Refrigerators are being exported to Middle East, CIS and SAARC countries from its Noida manufacturing complex. Samsung India currently employs over 1600 employees, with around 18% of its employees working in Research & Development. 2.2 Whirlpool India Whirlpool was established in 1911 as first commercial manufacturer of motorized washers to the current market position of being world's number one manufacturer and marketer of major home appliances. The parent company is headquartered at Benton Harbor, Michigan, USA with a global presence in over 170 countries and manufacturing operation in 13 countries

with 11 major brand names such as Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. Today, Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25 per cent. The company owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune. 2.3 LG India LG Electronics was established on October 1, 1958 (As a private Company) and in 1959, LGE started manufacturing radios, operating 77 subsidiaries around the world with over 72,000 employees worldwide it is one of the major giants in the consumer durable domain worldwide. The company has as many as 27 R & D centers and 5 design centers. Its global leading products include residential air conditioners, DVD players, CDMA handsets, home theatre systems and optical storage systems. 2.4 Godrej India Godrej India was established in 1897, the Company was incorporated with limited liability on March 3, 1932, under the Indian Companies Act, 1913. The Company is one of the largest privately-held diversified industrial corporations in India. The Company has a network of 38 Company-owned Retail Stores, more than 2,200 Wholesale Dealers, and more than 18,000 Retail Outlets. The Company has Representative Offices in Sharjah (UAE), Nairobi (Kenya), Colombo (Sri Lanka), Riyadh (Saudi Arabia) and Guangzhou (China-PRC).

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A brief report on Consumer Durable Industry in India

2.5 Sony India Sony Corporation, Japan, established its India operations in November 1994. In India, Sony has its distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive outlets and 21 direct branch locations. The company also has presence across the country with 21 company owned and 172 authorized service centres. 2.6 Hitachi India Hitachi India Ltd (HIL) was established in June 1998 and engaged in marketing and sells a wide range of products ranging from Power and Industrial Systems, Industrial Components & Equipment, Air Conditioning & Refrigeration Equipment to International Procurement of software, materials and components. Some of HILs product range includes Semiconductors and Display Components. It also supports the sale of Plasma TVs, LCD TVs, LCD Projectors, Smart Boards and DVD Camcorders.

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3. GOVERNMENT INITIATIVES

3.1 Recent Developments/ Investments To acknowledge the fast growing online consumer base, Multi Screen Media (MSM) has recently launched its video-on-demand service Sony LIV. The new offering aims at providing entertainment on the go for young India. Apart from enhancing the way entertainment is consumed in India, this user-friendly and interactive application is also a great platform for brands to strengthen their engagement and interaction with young consumers. The Sony LIV application is available globally for free, online on sonyLIV.com and for download on major App stores iTunes and Google Play in baby and medical nutrition), has revealed its growth plan for India wherein it intends to double its sales over 2013-16 first, by consolidating the local brands (which it acquired from Wockhardt nutrition) and then, introducing select brands from Danone's international nutrition portfolio (based on its understanding of the Indian market). Nutricias baby nutrition portfolio comprises of brands such as Farex, Dexolac and Nusobee -20 per cent and the company is vying for a major share in the same ch opened its seventh store in the country (in New Delhi) considers India among the top five global markets for its growth in the long term. Starbucks entered India in October 2012 and plans to grow its business aggressively, expand stores, make investments, and offer locally relevant innovations. Currently, its stores operate under an equal joint venture (JV) partnership with Tata Global Beverages called Tata Starbucks Ltd 3.2 Government Initiatives The Indian Government is majorly concerned about the development of rural markets and hence, keeps introducing policies and initiatives to encourage their growth. In a bid to make economic development inclusive, the Indian Government has initiated many schemes and programs that aim at improving the standard of living in India villages or rural areas. For instance, the Government launched a time-bound business plan for action called Bharat Nirman for enhancing the infrastructure in hinterlands. Under this program, action is proposed in the areas of Water Supply, Housing, Telecommunication and Information Technology, Roads, Electrification and Irrigation. Apart from that, the Government is considering enhancing the authorised capital of National Bank for Agriculture and Rural Development (NABARD) to Rs. 20,000 crore (US$ 3.71 billion) from Rs. 5,000 crore (US$ 928.49 million). The increase in authorised capital is

aimed at enhancing the operations and broadening the scope of activities of NABARD.

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4. CHALLENGES, OPPORTUNITIES & FUTURE PROSPECTS

4.1 Challenges and Opportunities The consumer durables sector in India is one that will be passing through some very interesting times. On the one hand there is substantial scope for expansion as the favourable demographics of India are a positive for the sector. On the other hand there are factors like increasingly expensive raw materials as well as competition that will have a detrimental effect on the sector. But there are issues that the sector wil have to face and the rising interest rate regimen is one of the first. Consumer durables are slightly interest rate sensitive. So, the current high interest rate scenario means that some sluggishness in demand can be expected. But, rising incomes have been pushing up the demand for consumer durables in India and, therefore, I will not be surprised, if demand sustains, though at a slightly reduced rate. Another factor that is going to affect the sector is competition. There is intense competition among players leading to higher ad spends and lesser pricing power, thereby lowering margins. While market leaders in the various categories are emerging, the other companies are finding that it is a tough going. And the raw material scenario for the sector too is going to be problematic for the sector. Raw materials, as inputs vary as much as there is variety in consumer durables. Some of the main inputs are natural rubber used in tyres, and metals & polymers, which constitute the body and/or the electrical/electronic components. With continuous changes in the psychographic and demographic profile of the consumer, the raw materials as well as the products are required to undergo persistent changes to meet not only the varying demand, but also to meet the packaging and transportation needs, to improve the time and place utility of the product, as well as in product differentiation. This would mean that consumer durable sector would continue to rely heavily on advancements in technology. Since the industry is likely to do well for many more years to come, investing in stocks in

the industry, when the prices correct would be a good idea.

About 30-35% electronic components required for local equipment manufacturing are available from domestic sources. For semiconductors, there is almost 100% dependence on imports. continue to plague hardware manufacturers. Specific items are covered under Customs Notification 25/99, although the procedure for claiming this benefit is extremely convoluted and time taking Private & Confidential Page 9 of 11 A brief report on Consumer Durable Industry in India

very high indirect taxes manufacturing disabilities estimated at 7-8%. This discourages capital intensive, high value add investments in manufacture of components / parts which require high and long term investments necessitating a supportive fiscal and infrastructural environment. 4.2 Swot Analysis 4.2.1 Strengths Presence of established distribution networks in both urban and rural areas -known brands unorganized sector. 4.2.2 Weaknesses nd is seasonal and is high during festive season

4.2.3 Opportunities In India, the penetration level of white goods is lower as compared to other developing countries.

of finance 4.2.4 Threats

4.3 Future Prospects India is emerging as the third largest internet market and its e-commerce business is likely to touch Rs 4,000 crore (US$ 742.76 million) in 2015 against Rs 1,200 crore (US$ 222.83 million) at present. Also, with mobiles becoming a major medium for advertising and content delivery, every three out of four users in the country are expected to access the net through a mobile phone by 2015. During 2012-22, cumulatively around US$ 500 billion of ad spend is expected to happen on mobile phones, according to industry estimates. Private & Confidential Page 10 of 11 A brief report on Consumer Durable Industry in India

Moreover, companies in the last decade have positioned tea and coffee as recreational products, which have majorly attracted younger population. Growing at a compounded annual growth rate (CAGR) of 20 per cent, it is expected to touch Rs 33,000 crore (US$ 6.13 billion) by 2015 from the current level of Rs 19,500 crore (US$ 3.62 billion) (in 2011).. Domestic coffee outlets, which have a lot of appeal for the new generation, are set to double over 2012-15, majorly driven by the foray of global players such Starbucks and Dunkin Donuts in India. Upcoming Investments by Major Players (USD billion) LG 375 Panasonic 208.3 Videocon 12.5 Haier 10.4 Blue Star 8.3 Whirlpool 3.1

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