Mumbai: Consumer durable companies are stepping up investments in production and distribution to cash in on the demand the industry is witnessing.
According to a recent report by research agency Crisil, the Rs 25,000-crore consumer durable industry is slated to grow at a rate of 17-18 per cent over the next five years, to touch Rs 60,000 crore. Already, the festive period, stretching from July to November, has been a good one for most consumer durable companies. Sales growth was in excess of 30 per cent compared to last year when it was just half of that.
"Naturally,” says Amitabh Tiwari, National Head, Sales, LG Electronics. “Companies are keen to take advantage of this boom.”
According to industry estimates, investment, close to Rs 5,000 crore, will be made in the next few years in production and distribution alone with an objective to meet the growing demand.
Companies at the fore front of this investment exercise include the Korean Chaebols LG and Samsung, Japanese major Panasonic and Indian companies such as Onida, Godrej Appliances, Videocon, Voltas, Blue Star, Bajaj Electricals and Havells.
LG, for instance, will make investments of over Rs 1,300 crore in the next few years, which will involve setting up a new plant, most likely in Chennai, say company officials. The firm, the largest consumer durables manufacturer in the country, already has two plants — in Pune and Nodia. Of the Rs 1,300 crore capex, Rs 350-400 crore will go towards ramping up infrastructure and capacity at existing plants, company officials say.
Another Rs 100 crore will be invested in expanding LG’s network of brand shops from 1,100 to 2,000 by the end of next year. Its regional sales offices will also be increased from the current 38 to 47 respectively, says Tiwari.
The country’s second-largest consumer durables maker Samsung, meanwhile, has just inaugurated a new plant at Chennai at an investment of over Rs 335 crore, says the firm’s deputy managing director, Ravinder Zutshi. The plant will produce 1.2 million refrigerators and increase its in-house capacity to 2.6 million refrigerators. Earlier this year, Samsung invested Rs 45 crore to set up a new split air-conditioner (A/C) production line in Noida. This came soon after a new line for split ACs was set up in Chennai last year for Rs 22 crore. All of this puts the company’s total capital expenditure in the last one year at around Rs 400 crore, says Zutshi.
“But this is not all, he says. “In the next five years our investment in Chennai alone will be close to Rs 450 crore (or $100 million).” The firm is also increasing the number of its brand shops by 150 in the next one year. Its current strength is 300.
The third largest manufacturer, Videocon, has earmarked Rs 1,600 crore as capex, which will be utilised to set up a plant in Chennai to manufacture LCDs, say company sources.
As the top three players ramp up investments, Japanese major Panasonic is set to plough in over Rs 1,000 crore in the next three years to set up among others its manufacturing plants in the country, which will come up in Haryana. The company will also set up a state-of-the-art research and development (R&D) centre; something the Korean Chaebols are also doing. Samsung, for instance, has just set up a performance innovation centre in India — the fourth after the US, China and UK — which will design and develop new innovative products.
Rival LG is also upgrading its Indian R&D centre so that it can design and develop both white and brown goods for global markets.
Of the Indian companies, Onida, says the firm’s vice-president, sales, marketing and service, K Sriram has commissioned a new plant at Rourkee in Uttar Pradesh to manufacture washing machines. The initial investment will be Rs 60 crore, he says.
Godrej Appliances is investing Rs 100 crore to set up new lines at its Pune and Mohali factories, while air-conditioning majors such as Voltas and Blue Star will pump in Rs 40 crore and Rs 21 crore, respectively, this year towards capex.
Lighting companies such as Bajaj Electricals and Havells are also ramping up production investing Rs 25 crore and Rs 200 crore, respectively. “Consumer sentiment is good,” said R Ramakrishnan, executive director, Bajaj Electricals. “The mood is positive. This is resulting in capacity expansion because most players anticipate growth to be good in the sector.”
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