What’s driving the business for consumer durable makers this year?

The consumer durables sector in India is expected to see double-digit revenue growth in the current year to cross the milestone of Rs 1 lakh crore backed by the missing factor in the revival in business last year--volumes.

While the industry had crossed the pre-pandemic mark in value terms last fiscal year, it is now expected to scale past the pre-pandemic volume mark by around 3%. As a result, the sector would record 15-18% growth in revenues, led by a 10-13% increase in volume, according to rating and research firm CRISIL.

It said the demand will be driven by both urban and rural segments, though rural demand will come into play in the second half of the fiscal year.

In the last two fiscal years, pandemic-led disruptions had impacted consumer sentiment and peak season demand. This fiscal year, healthy growth in urban income and higher crop prices, which are expected to sustain farmer incomes, are slated to push demand for consumer durables.

Shorter replacement cycles, uptrading, increasing finance penetration and changing weather patterns will support the strong volume growth.

The under-penetrated air conditioners (AC) segment will be the key growth driver for the industry. Demand for ACs and refrigerators is being driven by changing weather patterns. While consumers are opting for higher-capacity refrigerators and washing machines (mainly fully automatic), compact ACs are preferred keeping in mind smaller apartments in urban areas.

Demand for television would be driven by shorter replacement cycles, multiple ownerships, and preference for larger screens. Technological advancement, high competition and consequent significant reduction in prices have also aided demand in this segment.

On the flip side

At the same time, profitability will decline marginally due to higher raw material prices and adverse foreign exchange movements.

After a significant contraction of 180-200 basis points last fiscal, operating margin is likely to decline marginally this year because of higher price of copper, aluminium, steel and polypropylene; which could not be fully passed on to the end consumer. 

Despite declining from the peak in the last two months, input prices remain higher than historical levels. Rupee depreciation also impacts profitability as nearly half of the raw materials are imported.