For A Clearer Picture

The television industry has gone through a rough patch for the last two years. Domestic manufacturers had large capacities but the demand was just not enough. Then there were the new entrants like Thomson, Daewoo and Goldstar to increase the supply. And Akai, the dark horse, threatened to change the way a consumer purchases a television. A media blitzkreig with attractive exchange schemes and freebies have given Akai a market share of 10.9 per cent between January 1997 and November 1997 against 2.8 per cent in previous corresponding period. And volumes at Akai continue to increase. This in turn has resulted in similar schemes being offered by other television manufacturers like Crown and even Philips. How will other manufacturers take on Akai? The Smart Investor finds out.

 

Demand in the television industry is price sensitive and the demand pattern in the country has been highly volatile. According to K S Raman, president of Consumer Electronics Manufacturers Association (CETMA), if a company through its dealer drops the price of a television even by Rs 200, it will affect volumes significantly. In 1997, the television industry recorded a sluggish 14 per cent growth and ORG has estimated growth of the colour television industry at 10.3 per cent for 1998.

Last year overturned the apple cart for most television companies and belied growth predictions of almost all the companies. Total colour television sales rose from 1.95 million to 2.3 million units and the black and white televisions declined for the first time after 1991 from 6 million units to 5.6 million units. And among companies only four did well; Akai, BPL and Videocon and the Korean multinational Samsung.

The myth that the entry of MNCs would finish Indian television industry was also destroyed. Major Indian brands together retained 70 per cent of the marketshare while Videocon and BPL together account for 45 per cent of the total market share.

Another emerging pattern is the diversification plans of television companies as they were uncertain about relying on television business alone. Television companies unveiled plans to diversify as they have realised falling profitability over past years. BPL diversified into alkaline batteries and Philips is looking at audio systems to bring volumes this year.

MNCs despite the backing of their parent companies have found the going tough in the first year of their Indian operations. Famous branded television sets to enter the troubled Indian television market this year are Korean MNCs like LG, Samsung, Daewoo and Sony from Japan. These multinationals have had to scale down their estimated turnovers and sales figures for 1997-98, their first year of operations They also had to scale down their estimated turnover and sales projections of the Indian market as a whole for the next few years till the year 2000.

Companies like Sony, Whirlpool and Matsushita (the makers of the Panasonic brand) have admitted to have entered the Indian white goods market on the basis of inflated views of demand in the Indian domestic market. The scaled down market expectations have much do to with the scale down of the much hyped buying potential of the fabled Indian middle class.

Of the multinationals, Samsung was the lone company to belie its own conservative estimates of turnover and sales figures and captured a phenomenal market share.The company achieved a turnover of Rs 400 crore in 1997 (they achieved their estimated yearly turnover by the second quarter of the year) and captured 8 per cent of the market share by selling 170,000 colour televisions.

In face of extensive competition, the domestic players appear to be learning all about survival. The domestic players are to be waking up to the reality of an extremely price sensitive market and the newly emerged equation that sales figures will be inversely proportional to the price and every penny charged less will be reflected positively in the balance sheet.

Today the companies have realised that prices of their products have to be reduced through economies of scale, better production processes and improved after sales service. The domestic players have realised the need for internal cost cutting which will facilitate the sale of television sets at the lowest possible price. On the flip side, the industry is seeing an unprecedented increase in budgetary allocations for advertising. BPL has allocated Rs 45 crore this year for the purpose of advertising and publicity for television. Videocons budgetary for advertising is around 8 per cent of its gross turnover.

The other company with trailblazing success this year has been Baron International, marketing the Akai brand of televisions. Akai offers its customers television sets at extremely reasonable rates and has further set the trend for increased discounts to traders and retailers. These discounts along with low maximum retail price have been a very difficult precedent to follow for the other companies. But analysts say they have heard rumours alleging that Akai may be marketing substandard goods and therefore their real test will be the after sales service offered by the company if complaints start pouring.

Raman says the entry of Korean brands and the exchange schemes with freebies launched by Akai will put further pressure on the established television companies. The South East Asian crisis has further devalued Korean currency, which means they will be able to sell cheaper television sets in India. As the domestic market is price sensitive, Indian companies will have to follow suit and slash prices in tandem with the MNCs. He says, If a company wants their sales figures to go up, it has to slash prices. The moot question here is how much can companies reduce them without going in red.

The depreciation of the rupee on a daily basis also spells losses for the industry where the import content is significant. While a section of the industry thinks that the current devaluation will boost exports, the general perception is that margins will be affected. It is believed that an immediate increase in prices may prove disastrous given the sluggish market conditions and high import costs as companies will be compelled to either absorb the burden or pass it on to consumers.

The black and white segment of the television industry is on the brink of extinction. Aditya Srinath, analyst with SSKI, says, There has been a 12 to 13 per cent hike in demand for colour television in the year while the black and white television industry is on its death bed, being killed at a rate faster than expected. This is a fall-out of the exchange schemes run by the colour television (CTVs) majors in the rural markets. The used CTVs in working condition are dumped in the rural markets at lower rates than that of a new black and white television set. In a market that sells a brand new black and white set at Rs 3000, an old spruced up colour television is sold at Rs 2500, thus eating into the black and white television market. This has nearly wiped out the demand for black and white television sets. Thus the booming replacement market will continue to displace the black and white televisions from Indian homes.

Apart from domestic sales, the sole other avenue open to black and white television manufacturers has been exports. But exports have also slumped in 1997-98. The industry has lost out to Chinese manufacturers who sell at much lower prices. If an Indian set costs $38-40, a similar Chinese set would be available for $24-35. This has resulted in decreased forex earnings also. Big black and white players like Bestavision and Fusebase Eltoro have shelved plans to enter the export market.

Thus the industry is going through a major transition as manufacturers need to chase volumes in order to survive. The ultimate beneficiary for the next few years is obviously the consumer. But how are the domestic manufacturers doing? The only company in the industry worth investing in right now is BPL. Market rumours are that Akai is also planning a public issue.

BPL

For the first half of 1997-98, domestic leader BPL posted an impressive 30 per cent growth in sales at Rs 606.55 crore and a 36 per cent rise in net profits at Rs 33.26 crore. BPL has managed to cut costs by tightening its internal operations. It has brought its working capital down form Rs 30 crore to Rs 3 crore annually and their inventory is cash neutral at present. Srinath expects BPL to eat into the market share of Videocon and Onida.

Last year, BPL shed its premium image and began working on introducing TV sets in the lower segment of the market and began chasing volumes. Between January and November 1997, BPL commands a market share of 19.6 per cent, with a growth of 5.5 per cent over the previous corresponding period.

The company sold 523,616 colour televisions valued at Rs 759.13 crore and 456,282 million black and white sets valued at Rs 131.48 crore in 1996-97.

BPL has an equity capital of Rs 26.93 crore and the 1996-97 EPS is Rs 18.02. The current market price of Rs 90.5 discounts the EPS five times. BPL has also diversified into other businesses like alkaline batteries and gas tables. BPL is the most attractive stock in the industry right now.

Philips

Philips has gone through two bad years now as the company is expected to show lower profits even this year. For the first half of 1997, it made a net profit of only Rs 1.08 crore against Rs 7.27 crore in June 1996.

The severe liquidity crunch in the market has resulted in increased interests costs for the company. The company faced higher financing costs due to high utilisation of working capital in the first half of the year, additional term borrowings and increase in the interest rates.

Costs at Philips are also high and analysts say that it will have to spruce itself internally. Sujay Mishra, analyst, Peregrine, says, The cost structure of Philips is at least four times higher than all the other industry players, and its employee costs are very high. But he feels that as long as the company has the backing of the parent, it will survive.

As a major cost cutting effort, the management has decided to shift manufacturing facilities from Calcutta to Pune in Maharashtra. This move is awaiting a nod from the chief minister of West Bengal Jyoti Basu and the companys future depends on this decision to an extent. Another positive step the company has taken is by appointing Ravi Kant, a well-known marketing man in the industry and market watchers expect him to turn the company around.

Between January and November 1997, Philips market share fell to 8.9 per cent, with a decline of 21.3 per cent over the previous corresponding period. Even in volume terms, Philips saw a decline in televisions from 814,000 units in 1995 to 775,000 units in 1996. Televisions contribute 27.44 per cent to the total turnover. For 1996, the EPS was Rs 1.77 with a net profit of Rs 8.07 crore. The current share price of the company is Rs 60.50.

Videocon

Videocon International sold 985,700 televisions between January and November 1997 valued at Rs 786.7 crore. Of the total turnover, 62.47 per cent accrues from colour television sets, assemblies and sub assemblies of colour sets. Its market share was 19.5 per cent for January-November 1997, a decline of 6.3 per cent. This decline is not as much as that of Onida and Philips.

Nabi Gupta, director-marketing and sales, Videocon, says that the company has a strong control on the distribution channels. He says, Videocon has the largest dealer network in the country and therefore we are better positioned to read the market trends accurately and well in advance. This allows the company to pre-empt any adverse fall-outs. Videocon has also resorted to internal cost cutting to ensure the general slowdown does not affect them. In addition, the company has integrated manufacturing facilities and collaborations with Toshiba to generate state-of-art products at competitive prices. For 1996-97, the companys turnover was Rs 1724.36 crore against Rs 1646.88 crore in the previous year. Net profit dropped from Rs 88.36 to Rs 82.13. Its current market price is Rs 25.55.

Mirc Electronics

Mirc Electronics suffered stagnant volumes in 1996-97. In face of competition, the company has drawn up an aggressive marketing plan for 1997-98 along with new product launches this year. Onidas agenda this year is value engineering discipline and focusing on cost reduction as a mechanism to improve gross margins. The brand Onida is also losing market share and for the period January-November 1997, it saw a fall of 16.8 per cent and has a market share of 9.8 per cent. Sales for 1996-97 declined to Rs 396.32 crore against Rs 428.51 crore. Net profit dropped from Rs 25.66 crore in 1995-96 to Rs 15.5 crore in March 1997. The current stock price is Rs 54.75.

Rupali Ghanekar