Consumer Durables: price hikes

Durables to feel the heat of higher steel prices:

Rising steel prices are likely to have an impact on the durables industry, with the sector mulling a round of price hikes. Prices of refrigerators, washing machines and air conditioners could move up 2-10 per cent in the near-term.

While a slew of companies in the durables business such as Samsung and Godrej has raised prices 1-4 per cent, many like Whirlpool, Haier and Panasonic are contemplating a hike too. Industry watchers observe that air conditioners, washing machines and refrigerators could be costlier by 5-10 per cent. They note that the price hike is also due to rise in prices of other components such as copper and polymer.

Earlier this week, the largest steel maker, the Steel Authority of India Ltd, increased the prices of its products by three per cent or Rs 1,000 a tonne. Private players such as Tata Steel and JSW have also hiked prices following higher input costs.

Samsung India, have undertaken a one-five per cent price hike with immediate effect. Prices of direct cool refrigerator could move up anywhere between Rs 100 and Rs 1,000 while prices of semi-automatic washing machines have been increased by Rs 200. The biggest impact has been on air-conditioners which will see a hike of nearly 10 per cent.

The Haier India, would shortly announce a 3-5 per cent price hike on products like washing machines and air conditioners, among others.

Air conditioners are likely to have the maximum mark-up as use of steel is highest. Steel accounts for nearly 25-30 per cent of its input materials. Prices of steel and copper are at an all-time high. Costs have gone up tremendously in the last one year.

Inflation

Industry watchers note that the hike will have an impact on the margins of the companies. Panasonic India, try to absorb the maximum increase of commodity price hikes. Currently, they are not intending to pass it on to the consumers. However, if commodity prices continue to move up further, they will also have to undertake a price correction.

DTH: SECTOR OUTLOOK

DTH: Beaming future on zooming economy

From one service provider and a little over half-a-million subscribers at the end of the financial year 2005-06, to six service providers and 30 million plus subscribers now, the direct-to-home (DTH) industry has come a long way in an analogue cable-dominated market.

The first mover and the country's largest DTH player with over nine-million subscribers onboard, Dish TV, claims to have acquired a little over a million subscribers in the last three-and-a-half months. “Now, as an industry, we collectively enrol over a million subscribers a month with ease,” said a senior executive of Dish TV. In 2005, when Dish TV launched the country's first DTH service, not many people knew about the technology and its advantages. Making cable-dark areas as its prime target, the company managed to rope in just a little over half-a-million subscribers in the first year of operation.

With the entry of other players such as Tata Sky, Sun Direct and Big TV, AirTel and Videocon in the following years, the market gained good momentum and started expanding faster with every passing day, thanks to their aggressive high-decibel marketing and low entry fee for subscribers.

Industry observers say, it is likely to improve further and grow even faster in the months to come. In India, there are over 140 million TV homes, and of this, about 100-110 million homes come under the cable and satellite (C&S) market. With around 32 million subscribers, the DTH industry commands 32 per cent share of this market.

Largest DTH market

According to a study by Media Partners Asia, India will become the largest DTH market in the world in terms of subscribers by 2012 surpassing the US. However, Mr Salil Kapoor, Chief Operating Officer of Dish TV, is of the opinion that the Indian DTH industry with at least 33 million subscribers by the end of the current financial year would comfortably become the largest market in the world.

This can also be attributed to the fact that there are still large patches of cable-starved areas in the country, where people watch only terrestrial channels (which are Doordarshan channels), and also cable networks are not yet digitised in the country.

Despite all this, companies (except Dish TV which turned EBITDA-positive in the last few quarters), continue to bleed as the industry toils under a heavy tax regime, high subscriber acquisition costs and poor ARPU (average revenue per user).

According to industry sources, ARPU currently hovers around Rs 125-150 a month, of which around 30 per cent goes to the Government as licence fee and taxes (entertainment tax and service tax), and 50 per cent to content providers (broadcasters as charges). Only the remaining 20 per cent is the net revenue for the service provider. For example, if a subscriber pays Rs 150, nearly Rs 45 goes to the Government, Rs 75 to the broadcasters and the DTH service provider gets only the remaining Rs 30.

“Provided the operator achieves a critical mass of subscriber base, it will be very difficult to be cost-effective and turn cash-positive,” says Mr Sugato Banerji, Chief Marketing Officer (DTH Services), Bharti Airtel.

Big investment

Though the subscriber acquisition costs are said to have come down, companies still spend at least Rs 4,500-5,000. According to industry sources, on an average, an MPEG 2 set-top box with antenna and other equipment costs $37-38, while the MPEG-4 costs $12-15 more. This is despite the fact that bulk orders for these equipment fetch a “substantial discount” for the service providers.

“It's still a big investment and will make the gestation period even longer considering the current ARPU,” said a senior executive of another service provider.

However, according to some analysts, thanks to the increasing number of two-TV homes in urban and even tier-II markets, delay in digitisation of cable networks and growing sales of high-definition TVs, the subscriber base will certainly expand.

Besides, with rising ARPU and falling subscriber acquisition cost, majority of players will report at least break-even in the next couple of years.

Assocham forecast about FMCG

FMCG to grow at 50% in rural areas: Assocham

Fast-Moving Consumer Goods (FMCG) industry may grow by more than 50 per cent in its rural and semi-urban markets by 2012, according to Assocham. The market will grow at a CAGR of 10 per cent to Rs 1,06,300 crore from the current Rs 87,900 crore, according to Assocham. Growing demand for healthier organic products in urban areas will make it necessary for FMCG companies to shift their focus to rural areas, where the demand is growing. Currently, the market penetration in rural and semi-urban areas is two per cent as against its total growth rate of eight percent. The products that are expected to drive growth are soaps, detergents, cold drinks, consumer durables, toothpastes, batteries, biscuits and refined oil among others.