CENTER FOR BUSINESS KNOWLEDGE

KNOWLEDGE SERVICES

Indian Consumer Durables IndustryFebruary 2008Confidential - For internal E&Y use only

Consumer Durables Industry: An Overview Product SegmentsTelevision Refrigerator Dishwasher Mobile Phones Microwave Ovens Air-conditioners Washing Machines

Player Profiles

Contents

LG Samsung Sony Crompton Greaves Videocon Blue Star Whirlpool BPL Haier Bajaj Philips Salora Motorola IFB Nokia Godrej

2

Consumer Durables: Overview Market Classification: Household appliances market includes six product sectors: refrigeration appliances (including, fridges, freezers, and fridge freezers), cooking appliances (including, cookers, microwaves, ovens, cooker hoods, food processors, and toasters), washing appliances (including, washing machines, clothes dryers, and washer-dryers), heaters (which include space heaters and water heaters), vacuum cleaners, and dishwashers Top-line Growth: The Indian household appliances market generated total revenues of USD 3 billion in 2006, representing a compound annual growth rate (CAGR) of 12.5% for the period spanning 200206 Consumption Volumes on the Rise: Market consumption volumes increased with a CAGR of 8.9% between 200206, to reach a total of 22.8 million units in 2006 The market's volume is expected to rise to 31.6 million units by the end of 2011, this representing a CAGR of 6.8% for the 200611 period Best Performing Segments: The refrigeration segment was the market's most lucrative in 2006, generating total revenues of USD 1.2 billion, equivalent to 39% of the market's overall value The cooking apparatus segment contributed revenues of USD 1.11 billion in 2006, equating to 37.6% of the market's aggregate revenues Long-term Outlook: The performance of the market is forecast to decelerate, with an anticipated CAGR of 8.1% for the 200611 period expected to drive the market to a value of USD 4.4 billion by the end of 2011

India ousehold Appliances Market Segmentation : % Share, by Value, 2006Cooking apparatus 38% ashers 18%

eaters 4%

Vacuum Cleaners 1% Dishwashers 0% Refrigeration 39%

3

Consumer Durables SegmentsConsumer Durables

Consumer Electronic Goods

Consumer Appliances Refrigerators

Televisions VCD players Audio Systems

Washing Machines Air-conditioners Microwave Ovens Vacuum Cleaners Dishwashers.

4

Product SegmentationConsumer DurablesAir Conditioner Room Air Conditioner (RAC) Window AC Split AC Packaged AC Central AC Reciprocat ing Direct Expansion System Screw Chiller Centrifugal Chiller

Television Black and White Television (B&WTV) Conventional Color Television (CTV/CCTV) Flat Screen Color Television (FCTV) Plasma Television

Refrigerator

Washing Machine Washer SemiAutomatic FullyAutomatic

Mobile Phone

Microwave Oven

Direct Cool Frost Free

CDMA GSM

5

Market Value and VolumeIndia Household Appliances Market Value: USD billion, 23

2 6

3

3

India Household Appliances Market Volume: Units million, 2

3

6

6

6

!

# "

The Indian household appliances market grew by 7. in 2 6 to reach a volume of 22. million units The CAGR of the market volume in the period 2 2 6 was .

!

The Indian household appliances market grew by .2 in 2 6 to reach a value of USD billion The CAGR of the market in the period 2 2 6 was 2.5

6

6 6

2 6

Demand and Penetration of Consumer DurablesPenetration o Consumer Durab es (Number o househo ds owning goods per '000 househo ds)500 450 400 350 300 247.1 250 200 149.4 150 100 50 0 FY96 FY02White Goods

Demand o Consume Du ab es (Figu es in '000)14,000

451.712,000

13,149

3148,000

213 145.6 134 160.7

224.9

6,024 6,000 4,580 4,000 3,437 3,006 1,850 2,000 4,335 6,295

86.1 72

1,785

0

FY06Re ige ato s CT Regu a

FY100 2 1

FY96

FY02White Goods& &%

Re ige ato s

CT Regu a

7*Source: HSBC

& (

'

&

$

319.1

10,000

,727

9,957

6,774

FY06

FY10

0

0

0)

Present to Futureurre t Sce ario The consumer durables market in India is valued at USD 4.5 billion In 2006, microwave ovens and air conditioners market registered a growth of about 25% Frost-free refrigerators have witnessed significant growth as many urban families replace their old refrigerators Refrigerator sales climbed to 4.2 million in 2006, whereas the production of the refrigerators went up by 17% as compared with the preceding year Washing machines, which have always seen poor growth, witnessed reasonable growth in 2006 More and more Indians are now buying electrical appliances due to change in electricity scenario (improved power supply, more areas are electrified). The penetration level of Color Televisions (CTVs) is expected to increase 3 times in 2007 According to National Council for Applied Economic Research (NCAER), Indian consumer class is growing at a fast rate. This in turn is benefiting the consumer durables manufacturersFuture Sce ario

Strong growth is projected for the sector due to the easy availability of finance, emergence of double-income families, fall in prices due to increased competition, government support, growth of media, availability of disposable incomes, improvements in technology, reduction in customs duty, rise in temperatures, and growth in consumer base of rural sector Due to low penetration level of consumer durables in India, compared with other countries, there exists vast unrealized potential. For example, in case of CTVs, the penetration level of various countries is:Country India Brazil i a US Fra ce Japa Dema d a d Pe etratio Level of W ite Goods i I dia 199596 Dema d Pe etratio level 3.43 million 14 per 1,000 households 200506 .72 million 31 per 1,000 households 200910 13.14 million 451 per 1,000 households of Penetration 24% 11% % 333% 235% 250%

8*Source: HSBC

Five Forces AnalysisBuyer Power: StrongHigh due to the availability of many brands in most of the segments

Substitutes: LowVery limited because of high utility value and ease of use

Competitive Rivalry: StrongVery high competition to gain market share in the upper middleincome segment

New Entrant: ModerateBrand, reach, capital, technology and ability to offer attractive finance determine market shares

Supplier Power: LowLimited due to intense competition and threat from imports

9

Transformation DriversChange in India's income demographics is further propelling the demand for consumer durables The consumer durables industry is expected to grow by 12.3% in terms of value to INR 170 billion in 200607 Rising disposable income and the declining prices of durables are resulting in higher volumes. An increase in disposable income is aided by a rise in the number of double-income as well as nuclear families The consumer durables industry is expected to grow at 1012% in terms of value over the next two years, driven mainly by the growth in CTVs and air conditioners segments. In addition, the value growth will be aided by a marginal increase in the prices of air conditioners and refrigerators due to the rising costs of inputs According to Isuppli Corporation (Applied Market Intelligence), India's fiscal policy has provided an impetus to the Indian consumer electronic industry. The reduction on import duty in 200506 has benefited many manufacturers, including Samsung, LG, and Sony. These companies now import their premium end products from manufacturing facilities located overseas Indian consumers are replacing their existing appliances with frost-free refrigerators, split air conditioners, fully automatic washing machines, and CTVs, which are boosting sales in these categoriesProduct Category Growth in F 06 over F 05 Growth Driver AirConditioners Refrigerators 21 Changing lifestyles Rising incomes Increasing demand from commercial segment High penetration in metros Low preference in semi-urban and rural areas Long replacement cycle To touch 9.59.7 million units, fuelled by the World Cup Falling prices Rise in disposable income Low Preference due to availability of domestic help Constrained supply of power and water 2022 F 08 over F 07 (CAGR) Growth Driver Changing lifestyles Rising urban incomes Low current penetration Sluggish off-take from underpenetrated segments Increasing disposable income declining prices Rising disposable income Urbanization Expected growth over low base*Source: HSBC

6

46

CTVs

1315

1012

Washing Machines

6

79

10

Business DriversBusiness DriversDue to growth in production in the organized segment and the domestic availability of branded products (because of lowering of import duties and other liberal measures), the share of unorganized segment has witnessed a sharp decline With branded players providing better after sales services and consumer support, the perceived price difference between branded and unbranded products has narrowed down significantly, therefore, customers prefer buying branded products MNCs have an edge over their Indian counterparts in terms of technology combined with a steady flow of capital. The domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network, and an insight into local market conditions Competitive strategies revolve around strong brand differentiation and prices Increasing consumer awareness and preference for newer models has added to the demand. Products such as air conditioners are no longer perceived as luxury products but are seen as necessities in the changed socio-economic environment with changed life styles Attractive consumer loan schemes with reduced interest rates over the years by the financial institutions and commercial banks, and the hire-purchase schemes have added to the surge in demand. Also, the consumer goods companies are themselves coming out with attractive financing schemes for consumers through their extensive dealer network The phenomenal growth of media in India, the innumerable television channels and rising penetration of cinemas have spread awareness of products in the remote markets The Internet is now being used by the market functionaries, which is expected to generate additional sales of products. It will help sustain the demand boom witnessed recently in this sector

11

Key Success FactorsInnovative TechnologyTo maintain its competitive advantage, a player needs to regularly launch newer, better and innovative products with high quality at competitive prices With demand of technologically advanced products on the rise, product lifecycles are shrinking Most multinationalsLG, Samsung, and Whirlpoolreceive financial and technological support from their parent companies and therefore, are well-placed vis--vis domestic companies

Well-established Distribution Network

Establishing a strong distribution network and managing it effectively is an important factor for players to expand market share and provide improved service to existing customers The demand for consumer durables is concentrated in urban areas, with only 33% of sales generated from rural India. Most dealers have well established dealerships in major cities. However, with a growing demand from smaller cities, companies are strategizing to enter relatively under-penetrated, semi-urban and rural areas This parameter can be assessed by understanding two aspects of distributioncoverage and dealer efficiency. The number of dealerships is one indicator to measure market coverage, while revenue per dealer helps assess dealership efficiency Market leaders such as LG and Samsung lead competitors in the number of dealerships as well as greater revenues generation per dealer vis--vis the others

Increased Operational Efficiency

Capacity utilization and supply chain efficiency are important parameters to assess a players operational efficiency. Reduced bottle necks, lower costs, and minimal component inventory or shortages demonstrate high operational efficiencies Overall capacity utilization has been at sub-optimal levels in the consumer durables industry. Most players had set up their capacities in the 1990s in anticipation of a strong growth in demand, however, demand did not materialize as per expectations Operating levels vary across players. While players such as LG and Samsung operate at 7080% capacities, others such as Onida operate at 3540% capacity utilization

12

Key Success Factors (Contd.)Strong Brand ImageIndustry players with a strong brand portfolio have a strong competitive advantage over their rivals. Continuous and sustained advertising and sales promotional support is the key to creating of strong brands. Two parameters that help evaluate a players competitive edge are: Advertising support indicated by advertising spend as a proportion to revenue Advertising effectiveness indicated by market share movement Some companies such as Samsung and Whirlpool spend 1416% of their total revenue on advertising and sales promotion activities, while others such as Onida spend comparatively lessestimated at 45%. Market leader LG has been able to sustain its overall market leadership in the household appliances sector for the last 34 years with an advertising spend of 1011% of its revenues, despite increasing competition from new entrants. This indicates LGs advertising effectiveness)

Presence Across Segments

Pr A i

i r t t l l r l i r ifi i lli t t rti i , i tri ti t r l r i t t rti l r fl t ti t rti l r r t ti r lit l ri t , l r t l tilit i i l t. I tr t, r t r l r ilit t l i i i r i l i ff rt t i r if it r t AC t r it r

r

i t tti

: f it r t f r it r , i it r ifi r rtf li i r t i . It r t f r ,I i l f l f r r t l t it r i l i

l

ti l t

l tilit r l rtf li t t

r

i l t t

t r f r ,t li it r i i t t

t

rtf li CTV

r r

13

Key Success Factors (Contd.)Financing OptionsAvailability of consumer finance schemes and options for purchase of consumer durables is an important demand driver for the industry According to R Zutshi, Director, Samsung India, Consumer financing is increasingly being used as a marketing tool by companies since it serves to act as an incentive to consumers to upgrade their products, go in for multiple product options, etc. CTVs, the audio segment and air-conditioners are segments where there is greater penetration of consumer financing options According to a study by ICRA, "With payment being phased out over a few months, it is more manageable for a household compared with a one-time payment. In addition to dealers offering their own installment schemes, several consumer financing institutions have come up, facilitating the purchase of consumer durables and thus leading to their demand growth"

Knowledge of Local Market

The companies need to be totally inclined towards the needs, changing tastes and preferences of the target segment to be able to better cater to customer demands They need to ensure that product design, innovation and new technologies introduced are in synch with the customer requirements because a huge investment is made in R&D and companies need to make sure they are able to reap the benefits from this expenditure Players are able to acquire the required insights and customer feedback with continuous interaction with their franchisees. Therefore, franchisees contribute to build local expertise, knowledge and understanding of local market conditions

14

Risk Factors and ChallengesContinuous adjustment of the product mix in line with market demand or keeping pace with technological changes Drop in product prices due to competition Non-adoption or availability of technology Inability to keep pace with the changes in product design and features Integration issues arising due to a large number of M&A activities being witnessed by the industry Slowdown or recession in the global economy or the US economy thereby impacting demand Demand is cyclical and seasonal in nature. It is high during festive season and is generally dependent on good monsoons. Inability to meet high demand during festive season would affect the top-line of companies Problem Areas: Some of the reasons attributable in this industry that have contributed to the challenges are as follows: Inadequate emphasis on R&D Quality is still a major issue Insufficient emphasis on after sale-services and customer satisfaction initiatives

Commit sufficient resources for R&D Action for Players to Ensure Growth Improve after sales services Be more quality conscious Explore exports as an opportunity Emphasize on rural market development

Build economies of scale

15

Market Value and Volume ForecastsIndia Household Appliances Market Value Forecast: USD billion, 2006111 1

3

1

6

7

1

11

India Household Appliances Market Volume Forecast: Units million, 2006113 3 7 7 7 6 1 1

6 6 6 6 6 7 1

11

16

@3

4 @33

4 @38

4 @37

4 @36

4

36

3 36

T RG Q P I S

9336

H G EF F E V U E H A S

8336

336

336

56

36

5

3

5

In 2011, the Indian household appliances market is forecast to have a volume of 31.6 million units, an increase of 38.6% since 2006 The CAGR of the market volume in the period 200611 is estimated to be 6.8%

4 @37

4 @36

4 @33 6

1

4 @33 8

3

6

4 @33

4 @33 7

4 @33 3

36

3 36

T RGQP I S

9336

HGEFFED CBA

8336

336

336

4 5

6 4 56

4 5

3 4 53

In 2011, the Indian household appliances market is forecast to have a value of USD 4.4 billion, an increase of 47.4% since 2006 The CAGR of the market in the period 200611 is estimated to be 8.1%

4 @33 6 4 @33 3

5 7 4 57 5 3 3

SWOT AnalysisStrengthsPresence of well-established distribution networks in both urban and rural areas Presence of well-known brands In recent years, the organized sector has increased its share in the market compared to the unorganized sector Advancement of technology, which gives companies the ability to introduce new products and new product features High growth key drivers being urban and rural Government policies in favor of industry includes infrastructure development, reduction in excise duty, among others

WeaknessesDemand is seasonal and high during the festive season Volatile performance of the agricultural sector has a negative impact on demand. The sector's performance is highly dependent on monsoon which often fails Supply continues to outstrip demand Poor government spending on infrastructure

OpportunitiesIn India, the penetration level of white goods is lower as compared with other developing countries. There are opportunities to increase penetration in the Indian consumer electronic products and household appliances market Unexploited rural market Rapid urbanization Increase in income levels, i.e. increase in purchasing power of consumers Easy availability of finance There are opportunities to further develop the multi-brand strategy

ThreatsHigher import duties on raw materials imposed in the Budget 200708 Cheap imports from Singapore, China and other Asian countries Due to stiff competition, prices are continuously reducing. If the costs are not controlled then it may prove to be a threat and margins could be under pressure The cost of marketing, advertising and after sale services are increasing tremendously Rising cost and interest rates continue to be the key issues that are likely to shape the growth rates of the Industry. There was no change in the interest rates in the past two years, however, the interest rates have started increasing

17

Televisions

18

Segment OverviewOverall CTV demand (million units) I he a f ur year , he c r e ev (CTV) du ry ha w e ed a d ub ed g gr w h, w g a r e d p ab e c me, dec g pr ce , h r e ed rep aceme cyc e, a d dema d f r mu p e c r e ev The CTV du ry, wh ch dc e 1 m u 7, ha gr w a a CAGR f appr x ma e y 13% ver a d 71 1

1

3

M

The CTV du ry 73% f he marke p ayer

h gh y c da ed, w h ear y hare c r ed by he p f ur

Product Mix: Key Players (%) Panasonic BPL Sharp Akai Sony Sansui Philips Videocon Onida Samsung LG

F 06 Conventional 1 9 1 7 1 1 9 9 39 31 Flat 1 39

F 07 Conventional 1 7 3 3 37 1 Flat

The du ry arge y d m a ed by K rea p ayer . The K rea edge dr ve by c mpe ve pr c g a d ex e ve d r bu e w rk LG ha bee ab e ma a marke hare ver he year , wh e Sam u g ha marke hare. ca be a r bu ed Sam u g ex fr m he Th h gh v ume CCTV (C ve a CTV) egme mpr ve average rea za a d marg

3 71 3 9

19

Wcb

`Wcb

dWcb

YWcb

qpehi hgeffe

Wcb

XWcb

Wcb

XWWX

X W7

a ` Y X W

Competitive LandscapeMarket Share (%) LG Samsung Videocon Brands* Mirc** Sony Philips BPL thers Total CTV F 06 26 8 23 14 0 7 2 20 100 F 07 23 2 25 15 0 6 3 26 100 FCTV F 06 27 22 15 11 11 7 0 7 100 F 07 28 21 18 12 8 5 1 7 100

Rural Market ShareVideocon Group 25% Samsung 12% LG 27% Onida Group 12% Others 24%

*Videocon brands include Videocon, Sansui, Akai, Hyundai and Toshiba **Mirc includes Onida and Igo

Industry StructureCTV is a well-consolidated industry, with the leading four players controlling nearly 74% of the market share The market is dominated by Korean players who have grown over the years, primarily due to competitive pricing and extensive distribution networks

Total Market Share of Key Players F 07Samsung 14% Videocon Brands* 21%

LG 26%

Mirc** 13% Sony 5%

Others 14%

BPL 2%

Philips 5%

20

LCD TVOverviewLCD (Liquid Crystal Display) TV has captured 47% of market share in the global television sector. Sales improved due to rapid price reductions of large-sized Liquid Crystal Display Televisions (LCD-TVs). The forecasts for LCD-TV panel shipments in 2007 has increased by 42.7% The traditional televisions use cathode ray tubes (CRT) to work, while LCD televisions use liquid crystal technology. This technology has been much in demand due to its fast motion video quality flat panel displays. LCD is more appealing because of its thin and light form factor. As a result, the set itself looks thin but the technology inside is quite extensive

Passive matrix LCD: The LCDs are able to differentiate in the manner the pixels are controlled in television

Types of LCDs

Active matrix LCD: Also called TFT (or Thin Film Technology) sets, these use transistors at each intersection to control the current being passed through the pixels. Active matrix LCD televisions are less prone to ghosting, blurry images and poor contrast that sometimes can affect passive matrix LCD televisions

Benefits Offered to Customers

LCD Televisions produce clear pictures and the screen is also flicker- free The televisions are environment-friendly since they generate less radiation than traditional televisions and also use far less power, which makes them more cost-effective Improved sound quality, with many LCD TVs having built-in speakers and stereo amplifiers Multi-functional since the television can double up as a computer monitor that produces sharp high-resolution graphics and text Some LCD TVs have dual outputs so that you can connect two computers to one screen Most LCD TVs are compatible with HD (High Definition) television broadcast so they do not need to be upgraded when HDTV becomes mainstream They are usually slim and sleek with a flat screen and in-built tuner meaning that they take up less space than a traditional television and look less obtrusive

21

LCD TV: Industry ScenarioDuring 2006, the global market for LCD TV reached a volume of 187.7 million units

Global Scenario

Samsung was the market leader in terms of unit sales with a market share of 14.64% followed by Philips with 13.41%. Sony contributed the highest in terms of value with a 16% share in 2006 as compared with 2005 in worldwide sales of LCD television In 2006, shipments of the LCD television more than doubled to 46.4 million units, and constituted 47% of the market share on a revenue basis in the global television market World Cup propelled sales: LCD TVs gained a significant share in all regions. Europe was the top region that contributed to 39% of the market share in the total LCD television shipments in 2006. This was primarily due to the anticipated demand surrounding the World Cup Soccer Tournament. Among other countries in Asia, China has the largest TV market in the world. Japan has the fastest development in LCD TV globally, and Korean vendors lead the global TFT-LCD panel shipment, while competing with Japan in plasma display panel (PDP) TV panel production

Indian Scenario

The increase in consumer preference for flatter displays has been growing, with flat TV sales tipped to capture 60% of the entire TV segment in 2006 compared with 43% in the previous year This is largely attributable to the reduction in prices of LCD TVs, and increasing consumer awareness on the benefits of LCD technology Samsung has the highest market share in LCD television market by 46.6% followed by LG Electronics with 40.6% and Sony with 11.2% in 2006

Outloo

Technological advancement and price competitiveness has driven the demand for large and high quality displays. This has also propelled the growth in the overall television market With a significant rise in demand for LCD TVs, the category is expected to grow to USD 84.3 billion in revenues by 2010, expanding at a CAGR of 27.5%, up from USD 25.1 billion in 2005 LCD TVs are expected to surpass CRT TVs in terms of revenues and by 2009, LCD TV units shipped will likely exceed those of CRTs on a worldwide basis. To avoid this scenario, companies can locate their manufacturing in the same region or nation as the target market and continuously upgrade their product

22

Cost StructureCost Break-upertisi & arketi pe ses Ot ers Ra aterials, Stores 8

Ra

aterial Break-upC assis 29 Ot er 8

a es a Salaries Distri utio pe ses o er & 4 uel 1

Ca i et

er

C 3

Re ote Co tol & u er u er, Operati 2 it 1

Ra

aterial Costs

Raw material is the largest cost component, constituting over 70% of the total cost. These costs depend on the levels of indigenization strategy adopted by manufacturers. Some players, Videocon would have a higher proportion of raw material costs as against players, including LG, Samsung and Mirc, who have a higher level of indigenization The color picture tube (CPT) is the largest component that is usually sourced by OEMs from domestic players, including Samtel and Hotline. It constitutes approximately 54% of the total raw material cost. CPT prices have been falling by 35% annually over the past five years. Mostly, domestic prices follow the international trend and since international prices have been falling, CPT prices declined by 23% in 200607

Selli a Distri utio cost

Advertising, selling and distribution costs constitute the second-largest cost component for CTV players with a share of over 8% of the total cost These costs are seasonal in nature and continue to be high during the period of September-November each year, especially during important events such as the Cricket World Cup

23

Emerging TrendsPlayers Increase Focus on Rural MarketsUnsaturated rural market: With over 150 million households, the rural market is extremely under-penetrated with less than 15% of them owning color televisions Shift towards rural demand: However, this negative feature of rural India is a disguised advantage for the industry. Since the urban markets is well penetrated, the demand growth is dependant on replacement purchases. Therefore, most CTV manufacturers are shifting focus towards the rural market. In FY07, demand in the rural market accounted for 4.4 million units contributing to approximately 45% of the total CTV demand Promotional activities: Players are altering their promotional and sales strategies by pushing products through rural-centric promotional events such as haats and melas. These events provide players with the required platform for educational and promotional activities among villagers. Therefore, there is a change in the consumer outreach programs used by companies Product customization strategies: Many CTV manufacturers have customized their products and marketing strategies to penetrate this rural market. For example, LG launched DTH (direct-to-home) TV, catering to rural and semi-urban markets. Similarly, Videocon has developed the direct dealer (DD) channel for distribution in rural areas. Also, Onida has introduced the Igo brand under the Onida umbrella brand to cater to rural areas

Key ChallengesLimited capacity of rural consumers: Despite being attractive for players, the rural market is characterized by low per capita disposable income, sporadic power supply and tight availability of consumer finance. In contrast to urban markets, first-time users or upgraders from black and white TVs drive rural demand. Low-margin entry-level CTVs are popular with first-time purchasers in the rural segment, with 14 and 20 CTVs representing demand Difficulty in reaching into rural markets: In general, reaching out to a rural consumer poses a relative challenge as opposed to the urban customer. There is surely a growing focus on increasing awareness, improving accessibility, and driving rural aspirants to adopt an urban quality of life. However, a very few consumer product manufacturers have managed to address the needs of rural India against affordability constraintsRural

Regional Sales Break-up F 07

Ur an

24

Emerging Trends (Contd)The CTV industry is encountering a continuous shift towards the FCTV segment, due to fall in FCTV prices and reduced price differentials between the FCTV and CCTV segments The FCTV segment has witnessed a growth of approximately 80% during the past five years, while the CCTV segment has slowed, declining annually by approximately 13% during period 2002 03 and 200607 To improve margins and realizations, many manufacturers have shifted their focus towards the FCTV segment. Players, including Samsung have exited the CCTV segment, whereas others, such as LG have shifted their focus towards the FCTV segment This is evident from the number of new model launches and promotional activities (as against CCTV) that happen in the FCTV segmentTrend: Shift Towards Flat Televisions

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2001-02 2002-03 2003-04 2004-05 2005-06 Flat CTVs 2006-07 2007-08

Conventional CTVs

25

Emerging Trends (Contd.)The CTV category has seen a y o y growth of approximately in 2 6 growth within the due to a FCTV category, while there has been a marginal decline of approximately 2 in the CCTV category The 2 CTV category, comprising the CCTV segment, has witnessed a decline of approximately 2 The 2 CTV category has grown by approximately 2 . (y o y) in 2 6 . Within the 2 category, the CCTV segment has seen a drop of approximately 2 (y o y), while the FCTV segment has witnessed a growth of about (y o y) The 2 and 2 CCTV category is encountering the cannibalizing effect in favor of the 2 FCTV segment The 2 CTV category has recorded a growth of approximately (y o y) in 2 6 , mainly due to the growth of approximately (y o y) seen in the 2 FCTV segmentTrend: Dimension mix

26

v

r

"

2 "

2 "

>2 "

ur wrr

r w rr

r wyrr

v t

xr w rr

2

2

2

2

yr w rr t

r xrr t w

srrv sr2

sr

6

sru sr sr2 6 2 6 2

t

Refrigerators

27

Segment OverviewRefrigerators: Sales Volume and -o- Growth

2

Refrigerators - Sales Value (INR billion)

2 2

ae

u e

28

k j f i

g g

Volume growth has increased by approximately 7.5% annually between F 04 and F 07, with value growth surpassing volume growth by approximately 11% during the same period

fed

h

h

Despite moderate price reductions since F 02, demand for refrigerators has continued to remain sluggish at a five-year CAGR of 5.7%

2

Competitive LandscapeOverviewA refrigerator or fridge is a consumer electrical appliance, which comprises a thermally insulated compartment, wherein the mechanism is to transfer heat from it to the external environment, and hence cooling the contents in it, to a temperature below external environment In India, refrigerators have the highest aspirational value among all consumer durable goods, with the exception of televisions. This accounts for the high growth rate of the refrigerator market Direct Cool (DC) Frost Free (FF) The direct cool segment continues to dominate the Indian refrigerator market compared to the more expensive frostfree models The growth in the direct cool segment, though marginal, has been driven by factors such as the availability of low priced models due to competitive pricing and a growing middle class

Types of Refrigerators

Competitive OverviewInitially, the refrigerator industry was a concentrated industry, with nearly five major brands dominating the market However, currently, the combined market share of players including Whirpool, Godrej, and Videocon (including Electrolux) has reduced from 79% in FY02 to approximately 49% in FY07 Korean players such as LG and Samsung have increased their market share from 17% in FY02 to approximately 43% in FY07LG 27

Total Market Share of Key Players F 07hirlpool 24 Samsung 16

Godrej 14

Videocon 11

Others 8

29

Cost StructureCost Break-upertisi arketi pe ses 1

a1 Ot ers 13 Allu i iu 21

aterial Break-upCo pressor eciprocati 13

Su r 9 Wa es a Salaries a aterials, Stores 1 er o er uel 1 istri utio pe ses 3 e ri era t BS Bo 34 ra

a

aterial Costs

Compressor, steel and copper tubes and refrigerant gas are the most critical components of a refrigerator. These constitute 6065% of the total cost. Among them, the compressor is the most critical component, as the quality of cooling depends on it The average cost of a compressor ranges between INR 1,000 and INR 1,800, contributing to 13% of the raw material cost. Refrigerators use reciprocatory compressors While most manufacturers source their compressors from Indian manufacturers, such as Tecumseh Products India Ltd, others, including LG and Samsung source them from the companys manufacturing facilities in Korea and China

30

Emerging TrendsOverall Refrigerator Demand (million units)(million units) Direct cool 310 litres Direct cool total Frost-free < 225 litres 226300 litres > 300 litres Frost-free total F 04 .13 0.43 0.12 0 2.68 0.13 0.3 0.07 0.49 2.59 0.15 0.48 0.11 0.74 F 05 2.08 0.39 0.12 2.62 0.2 0.62 0.15 0.97 F 06 1.97 0.49 0.16 2.83 0.18 0.72 0.22 1.11 F 07 2.08 0.58 0.17

Refrigerators rank relatively low in consumer purchase hierarchy. They require a high cost of ownership, with single ownership per household, frequent voltage fluctuations/power problems (especially in rural areas) and low replacement demand This has led to low sales of refrigerators over the years

Segment Shift From Direct Cool to Frost Free

1

F

F

31

p

n

o

zrr tx q q tsrq y u wv uu o o

o

o

l m l m ln m

While the price fall has been approximately 3% in F 04 over F 07, realizations have improved largely by approximately 6% annually during the same period This has been mainly due to the segment shift from towards frost-free refrigerators. This segment shift has contributed approximately 13% to average realizations

100% 90% 80% 70% 60% 50% 40% 30%

F 03

F 04

F 05

F 06

F 07

007 08

Industry Structure and OutlookThe US and European refrigerator market is mature and continues to saturate, leaving minimal scope for growth

Global Scenario

Lower import duties are encouraging imports of capital goods and raw materials. The import duty on refrigeration equipment is approximately 40%. The US firms are considering joint manufacturing ventures or technology transfer arrangements for the local manufacture of refrigeration equipment

Indian Scenario

Despite early entry into the Indian market, refrigerators constitute only 16% of consumer durables market, which is estimated to be INR 40 billion In FY07, the industry reported sales of approximately 4 million units, and sales for FY08 are expected to touch 4.2 million units, with an expected growth of 8% Due to over capacity and intense competition, the ability of players to increase prices will be extremely restricted. As a result, sales margins are expected to remain under considerable pressure

Outlook

The entry of multinationals, including Whirlpool, Electrolux, LG, and Samsung into the Indian market, coupled with a significant expansion of domestic production capacities, is expected to push supply and lower prices of refrigerators in the medium term The companies are substantiating their plans to capture the major market share as penetration is low with in-depth and innovative marketing and promotional activities Apart from low penetration, the healthy growth rate in this segment has generated a huge opportunity for consumer durable companies to tap the untapped market Rural India, which accounts for nearly 70% of the total number of households, has a 2% penetration and this also provides plenty of scope and opportunities for the refrigerator segment In future, the overall demand is expected to be propelled by higher penetration levels in semi-urban areas, particularly in the smaller cities and the bigger towns

32

Dish Washers

33

DishwasherOverviewA dishwasher is a mechanical device for cleaning food dishes and utensils. It can be found in restaurants and also in the kitchens of many private residences Unlike manual dishwashing, which relies largely on physical scrubbing to remove soiling, the mechanical dishwasher cleans by spraying hot (5565C or 130150 F) water on the dishes First detergent-added water is used for cleaning purposes, and then clean water is used to remove the detergent residue. Some dishwashers have multiple wash and rinse periods within the complete cycle Many dishwashers also contain a heating element to achieve fast drying of the dishes which, in some models, can also be used to heat the water to the desired wash temperature

Types of Dishwashers

Capacity Size

Irregular sized plates may not fit into dishwaters Width and Depth (Standard) 60cm (Europe), 24 inches (US) Tall: 86cm (Europe), 34 inches(US) Portable: 45 and 60cm (Europe), 18 and 24 inch (US) 44 decibels, Undampened 6570 decibels Hot water sanitizing (at least 83 degree centigrade) Chemical sanitizing (Chlorine injection)

Sound Damping Sanitization

LG

Seimens Faber HeatKraft Kaff

Key Players

Haier IFB

34

Dishwasher: Industry ScenarioGlobal ScenarioThe sale of dishwasher has risen considerably during the last few years. The overall global market is characterized as an initial acquisition market with most of the consumers still purchasing their first dishwasher instead of replacing one Globally, different players are ruling as market leaders in different countries. The global trends are as follows: Increasing sales and saturation in most European countries Concentration in the production through mergers and takeovers. At the moment, there are approximately ten important producers in Europe Restructuring of the retail sector continues, with even bigger retail chains and buying groups

BRIC Scenario

Though India is a small market for dishwashers, with the changing lifestyle and demographic patterns, the market looks more promising than ever before. Some of the trends prevailing in the market are as follow: Dishwashers are seen as aspirational and are rarely used by BRIC consumers Few Brazilians own a dishwasher, or are convinced of its usefulness Many Russian consumers do not see a need for dishwasher appliances, although there is a potential market from high income women workers Given the low cost of domestic labor, Indian consumers will need to be persuaded of the added value offered by dishwashers The dishwasher market is just emerging in China Apart from these exceptions, the dishwasher market is heterogeneous, where ultimately the consumer has the say. Their decisions are led by brand and price, and increasingly by environmental aspects. The quality of the product plays an important role The dishwasher segment is yet to crack the developing countries. Persuading and convincing people of its usefulness and convenience in these countries to use a dishwasher is a major challenge. The future of the dishwasher segment is definitely promising, provided it penetrates into the developing markets

Outlook

35

Emerging TrendsNeed for PersuasionGiven the low cost of the domestic labor, Indian consumers still need to be persuaded of the added value offered by dishwashers Currently, the number of dishwashers sold is very small (worth USD 3.4 million per annum or 0.1% of the domestic appliance market) and indicates the limited awareness and take up of these appliances in the Indian market The majority of affluent Indians do not consider these appliances to be necessary because they rely on domestic helpers to wash dishes The general consumer attitude towards dishwashers in India is that these appliances are unnecessary and expensive. Other deterrents include frequent power cuts, high maintenance costs, and requirement of a large shelf place in the typical Indian kitchen set up With average labor costs at approximately USD 1.1 per hour in India in 2005, the economic incentive for affluent consumers to invest in these appliances is small Consumers are unlikely to buy dishwashers in the medium-term unless they can be persuaded that the appliances offer superior performance

36

Mobile Phones

37

Mobile PhoneThe mobile phone, used for communication, is a long-range, portable electronic device

Overview

Besides the standard voice function of a telephone, current mobile phones can support many additional services, including SMS for text messaging, email, packet switching for access to the internet packet, MMS for sending and receiving photos and video Most of the current mobile phones connect to the cellular network of base stations (cell sites), which are in turn is interconnected to the Public Switched Telephone Network (PSTN)

Types of Mobile Phone

Code Division Multiple Application (CDMA) Global System for Mobile Communication (GSM) Time Division Multiple Access (TDMA) Wideband Code Division Access (WCDA)

38

Mobile Phone: Industry ScenarioGlobal ScenarioWorldwide sales of mobile phones to end users in July to September 2007 (JAS07) have reached 270.9 million units i.e. 17.4% increase from the same period previous year. In 2006, Nokia continued to dominate the market, while Motorola (which was in second-place) witnessed a y-o-y drop of 7.3% in market share. Nokias business has become successful. Its sales have reached almost at 100 million mark in the JAS07 Motorola suffered from low demand for its handsets. The reason for this was due to the aggressive pricing policy. Samsungs sales into the channel were strong in August 2007, which saw the vendor taking the second position from Motorola Samsungs growth was boosted by the Ultra II family of products. The latest version of Ultra II family focuses on specific applications, such as music and video. Sony Ericsson slowed at the fourth place. LG reached a market share of 6.8% in the August 2007 Mobile handsets sales have shown a 40.7% increase from JAS06. Sales in China are growing rapidly, but India being affected by seasonal factors, is typically slow in performance Sales of mobile phones in Eastern Europe, the Middle East, and Africa showed a 5% increase from the second quarter in 2006. Although the majority of growth was still low, sales of third generation (3G) mobile phones have increased in the past couple of quarters highlighting that replacement sales are picking up in this region Despite a q-o-q decline in Japan, the JAS07 was the second biggest quarter in Japans mobile devices history in terms of sales. In Latin America, sales showed a growth rate of 24% on a y-o-y basis. Sales were driven by promotions for Mothers Day and by continuing technology migration to Global System for Mobile Communication. (GSM)

39

Mobile Phone: Industry ScenarioIndian ScenarioFY07 has been an exceptional year for the mobile handset industry, as the company has added 67 million every month. In terms of value, Indias mobile handset market has grown by 50% to reach INR 214.34 billion. In 200506, this figure was approximately INR 142.58 billion with the growth rate of 62% Nokia India had a phenomenal growth rate of approximately 45.5%, with revenues of INR 114.86 billion. In terms of market share, company has a share of 53.6%. This year company has launched forty new handsets, including 11 CDMA models Motorola has changed its marketing strategies, and because of the overall growth in the telecom sector and increase in hand set sales, it has shown a tremendous improvement in its market shares, from 4% to 11% in 200607 The CDMA space hampered the overall standing of LG in the market share. They have been growing at a fast pace in GSM but the numbers are relatively small. Collectively, the handset revenues were INR 23.48 billion in FY0607 The company has introduced seven new models, five in the low-end category, and two in high-end. For Sony Ericsson, this was a great year as they improved their overall ranking. The revenues from handset sales were approximately INR 13.86 billion. It has achieved the highest growth in handsets in terms of volume globally The penetration level in India in August 2007 was 212%, where as the increase in per capita income in FY07 was 29%

Outlook

India is a hub for mobile handsets. Mobile phone production in India is expected to grow at CAGR of 28.3% to reach 107 million units in 2011 Mobile phone production revenues are expected to reach USD 13.6 billion by 2011 at a CAGR of 26.6%. The growth drivers for the mobile industry are mainly the expanding mobile subscribers base in India, which is favorable for the local government policies promoting local manufacturing in India Rapid expansion in terms of new geographies and drastic drop in prices are fuelling the growth of mobile handsets. The cellular industry is eagerly awaiting the spectrum policy, which is needed to expand coverage, and to provide more value added services to subscribers

40

Competitive LandscapeCompetitive OverviewThe size of the Indian mobile handset market in FY05 was INR 88 billion The share of GSM handsets was 84% (INR 74.84 billion) even higher than the GSM connections (75%) for the same period It was also much higher than that for CDMA handsets, which accounted for INR 14.21 billion (16% market share) Sagem, Alcatel, BenQ, Panasonic, Bird, Siemens, Philips, O2, Blackberry, HP, Palm, Krome, and Kejian are the key GSM players while Hyundai and ZTE are frontrunners in the CDMA segmentMotorola 22

Total Market Share for all Handsets of Key Players 2006Samsung 12 Sony Ericsson 7 LG 7

okia 35

Others 17

Total Market Share of Key Players (GSM Handsets) 2005Samsung 11 Motorola 9 Nokia 62 Sony Ericsson 4 LG 3 Others 11

Total Market Share of Key Players (CDMA Handsets) 2005Nokia 18

LG 59

Samsung 6 Motorola 5 Kyocera 5 Others 7

41

Emerging TrendsIncreased Brand, Quality and Performance ConsciousnessBrand consciousness in consumers: Brand, quality, and durability are now more important for customers to make a purchase decision since on an average, consumers invest almost a months salary in a handset Wider consumer choices: With the entry of new handset vendors and brands and more than 15 players operating, customers have more choices. (Gartner expects more players, local as well as global, to join the action.) Increasing product differentiation: Brands that offer unique features are better positioned to compete in this highly competitive industry. However, a lot of contenders are coming out with similar product designs and features, which boosts affordability as well as gives consumers a wider choice of products High focus on feature design: According to Jan Blom, Head of the Nokias Bangalore design team, form is just one of the components that goes into the decision making process of a mobile handset. Other factors such as color, screen, and user interface play an equally important role. The product must be a complete experience with all the value of material quality, finish, and fit and style

Focus on Additional Features and Technology

Enhancing marketing options: The consumers are now focused towards additional features and innovative technology in their hand sets. This trend is complimenting the design of the handset to an application to enhance overall user experience. For example, Samsung offers handsets with flip/folder options, large screens with a better choice for playing videos. Similarly, Sony Ericsson is foraying into the designer mobile segment by combining stylish mobiles with gift vouchers Mobile phones are a style statement: There is an increased influx of designer brands in the Indian market as consumers are looking for value addition over and above basic functionality, in terms of trendy designs and products that help them make an individual style statement

42

Emerging TrendsEmphasis on Convenience and UsabilityUsability, easy navigation between the menu, as well as calls and applications have also seen a significant change. Mobiles are undergoing modifications that will help users to be more efficient and increase convenience There have been superficial changes, such as making heavy duty phones, pocket-sized, lightweight, use of minimal applications, especially while designing smartphones However, designers are now rethinking the form factor itself. For example, BenQ will be launching a music phone, with volume buttons perched outside. This was done keeping in mind that 1524 year olds, who can be seen in jeans listen to either FM/MP3s and would need to dig into their pockets to change the channel or advance through the playlist. Therefore, the company has designed this phone with all the music control keys on top of the phone, so there would be no inconvenience to the users while operating the gadget Similarly, there have been changes to the software for touch-screens to allow users to slide their thumb across it to flip through photos, or a camera button placed conveniently to allow them to click pictures immediately

43

Microwave Ovens

44

Market OverviewHigh-growth SegmentAccording to the Confederation of Indian Industry's ASCON survey for the April-September 200708 period, the microwave oven category has been identified as a high growth segment. It has been registering a 1020% growth rate According to Suresh Khanna, Secretary-General, CEAMA, Microwaves failed to take off initially in the country as they were not considered apt for Indian cooking needs. But the credit must be given to industry players for educating the consumer about the utility of microwaves and introducing options for the Indian buyer. The challenge in this category is to get the consumer to use the microwave oven for actual cooking, rather than using it as a mere reheating product.

Segment-wise Sales Volume (million Units)

200,000 100,000 0{

45

|

{

According to ORG estimates, during FY07, the production of microwave ovens was 657,000 units, and is projected to increase to 1 million in FY08 with a growth rate of 41% The demand for microwave ovens is likely to lower the price for its entry level models making it more affordable for the customer. The price for microwave ovens currently ranges between INR 4,000 and INR 14,000

700,000 600,000 500,000 400,000 00,000

FY01

FY02

FY0

FY04 Million nits

FY05

FY06

FY07

Competitive LandscapeCompetitive OverviewManufacturers are now shifting their focus towards product innovation and consumer education in order to increase sales for the category Haier, Electrolux, Godrej and Whirlpool have put microwaves high on their priority list to compete with market leaders such as LG and Samsung Apart from introducing new models, companies are looking at alternatives to make microwaves more popular According to Madhav Nene, General Manager (Marketing), Electrolux, "We have started organizing cookery classes in many cities. In addition to this, we offer a demo booklet, which helps the consumer to have a better idea about the product."Others 26

Total Market Share of Key Players F 05Samsung 19

LG 34

Electrolux 9 Onida 7 Godrej 5

Geographical Distribution of Microwave Sales ( )

The market for microwaves is not distributed uniformly across regions in India Most of the demand is concentrated in the northern and western regions with eastern regions contributing to just 3 of the demand

West 37

orth 45 East 3

South 15

46

Emerging TrendsShift Towards Customized MicrowavesManufacturers are customizing microwave ovens to suit their products to Indian tastes and preferences According to RT Rajan, Vice-President (Sales and Marketing), Haier Appliances (India), Haier is aiming for a larger share of the microwave oven market by launching new models in this segment. Haier microwave ovens come with true nutrition technology. Food cooked in these microwaves retain most of its vitamins and minerals by using less water (as compared to conventional cooking) and prevents leeching away of the food's vital nutrition. Whirlpool has launched 'MagiCook' microwaves that give users the option of MicroTawa to ensure food is cooked as per a variety of Indian recipes Mirc Electronics has introduced new India specific models apart from its special models for barbecue under its umbrella brand India Godrej has introduced its Eon microsteam model that promises to retain the original flavor in cooking

Change in Perceptions

Microwave ovens are increasingly being seen as a tool for facilitating convenience with a growing number of people getting into the work culture There is an increase in consumer awareness that has led to a spurt in the demand for microwave ovens, thus this segment is beginning to make its presence felt in Indian households Kamal Nandi, Vice-President (Marketing and Sales), Godrej Appliances, People are more open to adopting nonconventional cooking methods that make cooking easy. With additional disposable income and the falling prices of microwave ovens over the past few years, we see a distinct trend of people preferring microwave ovens over conventional ovens.

47

Air Conditioners

48

Segment OverviewSegment-wise Sales Volume (million Units)

4

Segment-wise Sales Value (INR billion)4 3}

3

4*

*

*

* E ma ed

49

}

}

}

Sales value growth has lagged by about 17% during the same period This has been mainly due to the segment shift towards spilt airconditioners

} ~ } ~ } ~ } ~ }

~ ~ }

~ ~

The air-conditioners industry has grown annually by approximately 22% Air-conditioners are perceived as a utility item due to competitive pricing, growing aspirations, increasing purchasing power, and greater exposure to the temperaturecontrolled environment in urban areas

4

4

*

Competitive LandscapeCompetitive OverviewThe air-conditioners market is a well-consolidated industry, with leading four firms accounting for approximately 67% of the market in FY07 Over the years, manufacturers, including LG, Voltas, Samsung and Videocon have continued to maintain and enhance their market presence in both product categories (split and window ACs) The reduction in the excise duty, along with manufacturers setting up production units in excise-free zones, has helped players to reduce pricesLG 28% itachi 7% Carrier 3% Others 24%

Total Market Share of Key Players F 07EVoltas 13%

Samsung 14% Videocon 11%

Organized and Unorganized Segment Shares, 2005 (%)

Due to the significant reduction in excise duty rates, unorganized players have lost their competitiveness to organized players

Organized 42% Unorganized 58%

50

Emerging TrendsThe split air-conditioner segment is heading the growth in the air-conditioners industry Split air-conditioners grew by approximately 26%, while window air-conditioners trailed with a growth rate of 5% There has been a stable shift in demand towards split air-conditioners Because of the steady erosion in the price differential between the two segments. This has resulted in the low-priced entry level of spilt air-conditioners being priced just a notch above the premium window air-conditioner segment Hence, apart from up-graders, this is also encouraging first-time buyers to opt for an entrylevel split air-conditioner over the window airconditionerSegment Shift Towards Split Air-conditioners

1

% % % % % % % % %FY * FY * Spli FY 5* FY * FY * i

5 %

1 %

* E ima e

Air-conditioners Growth: A Break-upF 04 Volume growth Change in Realizations Due to Change in Value Growth Prices Due to Gains from Change in Segmental Mix 1 15 -1 -1 1 5 F 05 5 F 06 1 5 F 07 CAGR (4- ear) . - . - .1 . 1 .5

51

Washing Machines

52

Segment OverviewSegment-wise Sales Volume (million units)

4

5

Units

4

5

Sales Volume

53

Sales value growth was at approximately 14.5% during the same period, which shows that sales value has surpassed volume growth, despite a reduction in average prices This has been mainly due to a segment shift towards fully-automatic washing machines and higher capacity washing machines The segment shift contributed approximately 4% annually to average realizations

Segment-wise Sales Value (INR billion)4

4

The demand in the washing machines industry reached 1.9 million units to grow by approximately 13.4% over 200203 and 200607 Rise in disposable incomes, decline in prices and change in lifestyle have helped the washing machine industry in India to record a double-digit growth during the last four years

4

4

Competitive LandscapeGeographical Distribution of Washing Machine Sales (%)West 26%

The market for washing machines is not distributed uniformly across the regions in India Most of the demand is concentrated in the northern and western regions with eastern regions contributing to just 8% of the demand

orth 42% South 24%

East 8%

Competitive OverviewLG and Samsung constitute approximately 50% of the total market share Product innovation, appropriate pricing strategy and a widespread distribution network have helped LG in maintaining its leadership over the last five years In the semi-automatic segment, Videocon and Samsung lag behind LG. They constitute approximately 20% and 19% of this segment, respectively In the fully-automatic segment, LG leads the market with a 27% share, while Samsung follows at second place with a share of about 20%

Total Market Share of Key Players F 07Samsung 19% Videocon 16%

Whirlpool 13%

LG 30% Others 16%

Godrej 6%

54

Costs StructureCost Break-upAdvertisi & arketi pe ses Ot ers 1

Ra

aterial Break-upotor 0 Steel 1

lastic

a es & Salaries

Ra

aterials 0

er

Ra

aterial Costs

Motors, steel and plastic sheets, switches and other internal components are the major raw materials used in the manufacture of washing machines. They constitute 4060% of the raw material cost Even after a reduction in the import duty, prices of raw materials, including copper and zinc, and most importantly steel, have increased, in consistence with the international trend. The prices of some of these raw materials, including plastic and steel have risen steeply over the past 12 years Washing machine players have not been able to pass on the entire increase in raw material costs to consumers due to stiff competition in the market

Advertisi a d arketi pe se

The advertising and marketing expenses constitute the second-largest component of a washing machine cost As it is a low technologically-intensive product, the success of manufacturers depends primarily on its distribution and promotional efforts Owing to extreme competitive levels, the industry has seen an annual increase of sales and marketing costs by approximately 56% over the past 5 years

55

Distri utio pe ses o er & 4 uel 1

Clutc 0

Ot ers

Costs StructureCost Break-upages & Sa a ries

RaOthers 1

ateria Break-upCRCA Sheets 1

Others 11

Ra

ateria Costs

Raw materials form a significant proportion of the total cost for air-conditioners, contributing 6575% to the cost The compressor is the most critical component with a share of approximately 30% in the total raw material cost In India, approximately 90% of total compressors used are of rotary type. Nearly 9095% of the total rotary compressors are imported due to inadequate manufacturing facility. Tecumseh is the only Indian compressor player who has initiated the rotary manufacturing in India

56

Fue 1

nerg

o er &

Co pressor

Distribution penses 4

aints 1

Ra

a teria s 1

Advertising & a rketing penses

A u iniu

Copper 1

Fan otors 1

Emerging TrendsSegment-wise Sales Volume (million units)1.

1

5

i-

to

tic

lly-

to

tic

n

lw

h r

Segment-wise Sales Value (INR billion)

5

i-

to

tic

lly-

to

tic

n

lw

h r

57

The fully-automatic segment has grown by approximately 30% over the last four years, while the semi automatic segment has lagged with a growth rate of about 8% annually during the same period The erosion in price differentials between the two segments has been enabling the segment shift

7

5

17

Over the past few years, the fullyautomatic segment has been leading the industry growth

. . . .

7

Emerging TrendsSemi-automatic Product Mix

Recently, a shift has been noticed in consumer preference in favor of higher capacity washing machines The shift has been more prominent in the semi-automatic segment The share of semi-automatic washing machines with capacities larger than 6 kg has increased from approximately 63% in F 04 to approximately 91% in F 07

8

5

5 s

Kgs

58

Players

59

LGCompany Fact Sheet Established In Managing Director Corporate Office Corporate Website Presence in India 1997 Moon B. Shin Plot no 51, Udyog Vihar, Surajpur Kasna Road, Greater Noida (UP) www.lgindia.com Manufacturing units at Greater Noida(U.P.) and Pune(Maharashtra)

90

Business Areas and Main Products Category Consumer Electronics Main Products LCD TV , Plasma Display , Display Panel, Color Television, Home Theatre System, Music system, DVD Recorder/Player, MP3 and MP4 Player Room Air Conditioner, Commercial Air Conditioner , Refrigerator, Washing Machine, Dishwasher, Microwave, Vacuum Cleaner Laptop, Personal Computer, LCD monitor, CRT monitor, Optical Storage Devices Premium trend setter phone , Camera Phone , Music Phone , Color Screen GSM Handset80 70 60 50 45 33.15 .16

82.5 75 65

Home Appliances

40 30

Computer Products Mobile Phone

19.03 20 10.56 10 0 1.25 1997 4.85

Turnover ( NR million)

60

1998

1999

2000

2001

2002

2003

004

2005

2006

LGCompany Fact Sheet About the Company LG Electronics India is a wholly owned subsidiary of LG Electronics, South Korea. The company was established in January 1997 LG set up a state-of-the art manufacturing facility at Greater Noida in 1998, with an investment of INR 5 billion. This facility manufactured Colour Televisions, Washing Machines, Air-Conditioners and Microwave Ovens In 2001, LG also commenced the home production for its refrigerators and established an assembly line for its PC Monitors at the Greater Noida manufacturing unit. In 2004, LGEIL also up its second Greenfield manufacturing unit in Pune, Maharashtra that commenced operations in October 2004 LG Electronics is the one of the worlds largest producer of CDMA handsets, optical storage devices, DVD players, canister vacuum cleaners, air conditioners, and micro ovens. Its four business units are: Mobile Communications, Digital Appliance, Digital Display, and Digital Media LG Electronics and Prada, a leading brand in the luxury goods, had announced an exclusive partnership to develop a technologically advanced and iconic mobile phone in 2007 The company has set up production facilities in Ruza, Russia, to serve customers better in the region as the country is expected to join the World Trade Organization LG built a new Plasma and LCD TV with Digital Video Recorder (DVR), which was launched in September 2006 in Berlin The consumer electronic industry is growing at the rate of 13.2% annually, and the global industry is generating revenues of USD 61 billion. This growth is driven by increased demand for flat panel computer monitors and highdefinition flat screen televisions It is estimated that the rising demand for LCDs, plasma displays, and micro displays will drive this growth till 2008, with revenues generated from the Asia-Pacific region and America The company needs to focus on strengthening its cost control measures and value engineering measures. It also needs to continue its spree of introducing new products and solutions to generate more profit and increase customer base The launch of Plasma and LCD TV with Digital Video Recorder is expected to help the company in leading the industry. With its strategies in place, LG should be able to continue generating more revenues from Korea and North America The companys focus on the European market and the setting up of large complex of production facilities in Russia will help the company to expand globally

Strategies

Outlook

61

Success StrategyParameter Tag-line USP/Positioning Lifes Good LG has earned a premium brand positioning globally due to its superior quality, high product performance, innovative technological advances and well-appreciated customer service. LG is recognized as a trendsetter for the consumer durable industry in India with the fastest ever nationwide reach, latest global technology and product innovation LG has differentiated its products using technology and health benefits. The CTV range has Golden Eye technology, air-conditioners have the Health Air System and microwave ovens have the Health Wave System Marketing and Promotion Strategy Commenting on the strategies that LG India plans to adopt to achieve growth, Moon B Shin, said, The successful implementation of Blue Ocean strategy across systems and products will be critical to our success this year. We have already rolled out products like Time Machine TV and Chocolate phone as part of this strategy and year 2007 will see us launching many more unique technologies and products. We will also strengthen our base as an export hub. According to Girish Rao, Vice-President for Sales and Marketing, LG Electronic India Limited (LGEIL), "Under the Blue Ocean strategy, we will be entering new segments and markets, and will aim to create uncontested market space. The new areas are products, business model work, systems and people. Improving in these areas will also strengthen our organizational competency." For example, the company launched refrigerators called intellocool refrigerators. The company has worked out a strategy that would create demand and also meet this demand by ensuring that the products are available everywhere According to Amit Gupta LGEIL Head (Sales and Marketing), We are targeting 30% sales in the premium segment in 2008, up from 2022% currently, for which, we will invest heavily in marketing, Of the planned investment, INR 10 billion would be to fund marketing efforts with a focus on plasma TV, IT products, split AC and GSM handset, while INR 1.2 billion would be to enhance production capacity. With the help of our aggressive marketing and expansions, we are hopeful of touching the revenue figure of four billion dollar. Innovative marketing strategies: To increase brand awareness in the consumer electronics sector, LG has taken innovative marketing and promotional initiatives: Launch of new technologies in consumer electronics and home appliances LG was the first brand to enter cricket in a big way, by sponsoring the 1999 World Cup, and followed it up in 2003 as well. LG brought in four captains of the Indian cricket team to endorse its products. LG invested more than USD 8 million on advertising and marketing through cricket Details

62

Success StrategyParameter Manufacturing/Distribution/ Supply Chain Local and efficient manufacturing to reduce cost To overcome high import duties, LG manufactures PC monitors and refrigerators in India at its manufacturing facility at Noida, Delhi. LGEIL had already commissioned contract manufacturing at Mohali, Kolkata and Bhopal for CTVs. This has helped LGEI to reduce costs LGEIL is implementing a digital manufacturing system (DMS) as a cost-cutting innovation. This system is a follow-up to the Six Sigma exercise LGEIL had initiated earlier Regional channel strategy and wide distribution network LG has adopted the regional distribution model in India. All the distributors work directly with the company. This has resulted in quicker rotation of stocks, and better penetration into the B, C, and D class markets LG also follows the strategy of stock rotation, rather than dumping stocks on channel partners LG has over 46 branch offices and another 110 area offices across the country. LG had set a target of developing 2,000 dealers in 2004, in addition to the existing 3,000 dealers all over India LG has a penetrative distribution strategy that ensures that products are available even in remotest of towns and cities. Thus the company has broken the chain of urban dependency, which plagues most white goods players LG reaches into these areas through a pyramidal sales structure. Branch offices in larger cities set up central area offices (CAO) in smaller towns; these in turn reach out to other even smaller towns and villages through remote area offices (RAO) The company had 51 branch offices, 87 CAOs and 78 RAOs. Each RAO has servicing, marketing and sales teams at its disposal and an individual budget for marketing activities in its territory The executive in charge has independent decision-making powershe can decide the tenor and scale of brand promotions in his area, without having to cross check every little detail from the head office Technology is also being used to ease their jobs. The RAOs and CAOs are all electronically connected through a V-SAT and Intranet network. And where earlier decisions about putting up large hoardings could be approved only after a visit from the head office, LG has provided all its branch managers digital camerasnow they just click images of suitable locations and get them approved electronically Details

63

SamsungCompany Fact Sheet Established In Regional President and CEO of Samsung South West Asia Regional Corporate Office Corporate Website Presence in India 1995 HB Lee

7th and 8th Floor, IFCI Tower, 61, Nehru Place, New Delhi, 110 019 www.samsungindia.com Manufacturing units at Noida (UP) and Sriperumbudur (Tamil Nadu)

Business Areas and Main Products Category Consumer Electronics Main Products Television (LCD, Plasma, FCTV, LED LCD), MP3 Players, Audio/.Video gadgets, DVD Players, Home Theatre Systems, Cameras and Camcorders Refrigerator, Washing Machine, Microwave Oven, Air-Conditioners

Home Appliances

Computer Products Mobile Phone

Monitors, Optical Disk Drivers, Laser Printers and Fax Machines CDMA, GSM hand sets

64

SamsungCompany Fact Sheet About the Company Samsung India is positioned as the hub for Samsungs South West Asia Regional operations. The South West Asia operations is under the leadership of H B Lee, President and CEO. He is in-charge of the Samsung business in Nepal, Sri Lanka, Bangladesh, Maldives, and Bhutan besides India The company is headquartered in New Delhi and has a network of more than 55 sales offices in India The Samsung manufacturing complex housing manufacturing facilities for Color Televisions, Color Monitors, Refrigerators and Washing Machines is located at Noida, near Delhi Samsung Made in India products such as Color Televisions, Color Monitors and Refrigerators are also exported to Middle East, CIS and SAARC countries from its Noida manufacturing complex In November 2007, Samsung commenced the manufacturing of Color televisions and LCD televisions at its stateof-theart manufacturing facility at Sriperumbudur, Tamil Nadu In line with the profile of its customers for Samsungs value and lifestyle products, the company is concentrating on the institutional segment and the retail segment comprising high-value customers. Therefore, Samsungs selling strategy in the value segment is centered around its corporate market, targeting institutional sales and CXOs, and the retail market, targeting high-value customers Products are sold through a combination of the companys channel network and retail outlets. The company has leveraged its dominating presence in India, and thereby has used the sales infrastructure of its consumer electronics business to enhance sales volumes To strengthen its position in India, Samsung launched two programs in 2004the Accredited Corporate Reseller Executive (ACE) program for the corporate market and a retail program for high-value customers. Since most lifestyle products of Samsung fall into the touch-and-feel category, retail was given a big push. The retail program involves setting up a strong distribution network of retail outlets. This includes existing Samsung Digital Home (SDH) outlets, a part of Samsungs consumer electronics business as well as IT retail showrooms Samsung continues with its present model on the channel front, with national distributors on top, followed by star partners, VAR partners and resellers. There was also an expansion at the reseller level to cater to the expansion generated by the new product portfolio. This has been supplemented by the setting up of a regional sales team In November 2007, Samsung India announced that it will invest USD 100 million (INR 4 billion) over the next five years in Sriperumbudur. It has already invested USD 30 million (INR 1.2 billion). In November 2006, Samsung signed an agreement for the facility with the Tamil Nadu Government According to Ravinder Zutshi, Deputy Managing Director, Samsung India Electronics is likely to end the calendar year with revenues of approximately USD 1.3 billion, a 20% growth over FY07. The company hopes to double its exports to approximately INR 4 billion next year

Strategies

Outlook

65

Success StrategyParameter Tag-line Details Branded its products as superior technology and environment friendly ones. Digital Lifestyle Company Camera: shoot someone you love Audio Communications: Samsung SoundAre you listening?

USP/Positioning

To differentiate itself, Samsung followed a deliberate strategy of bringing in the worlds leading design and technologies to India from its parent. It launched its products in India around the same time as the global launch of products. For example, Samsung was the first to introduce DLP televisions. The company launched fuzzy logic based washing machines, Silver Nano refrigerators, flat screen TVs and microwave ovens in India at the same time as the global launch Customized products for Indian Consumers: Samsung understands the local cultural sensibilities to customize its products according to the Indian market. For example, Samsung phones support five Indian languagesHindi, Marathi, Bangla, Punjabi, and Tamil. The company has a usability lab set up at the IIT, New Delhi to customize Samsung products to meet the specific needs of Indian consumers. This industry-institute partnership is helping Samsung to study and analyze consumer response in aspects of product design, including aesthetics, ergonomics, and interface Innovative promotion and advertising initiatives: To establish trust and confidence among Indian consumers, Samsung did active promotion and advertising by taking the following initiatives The company associated itself with the cricket. Samsung launched the Team Samsung campaign with the stars of the Indian cricket team. In 2004, Samsung also brought to India the India vs. Pakistan cricket seriesThe Samsung Cup Samsung sponsors the Indian contingent to the Olympics and the Asian Games. It helped bring the Olympic torch relay to India, for the first time. The company also sponsors the World Cyber Games every year Samsung also launched a series of innovative below-the-line activities. For example, in mobile phones, it tied up with painter Satish Gujral for his paintings to be available as downloads on Samsung mobile phones The company has undertaken product placement in movies and popular television serials, including Jassi where Samsung products were set in lifestyle environments. Similarly, for microwaves, Samsung ran a Kitchen-on-Wheels program where mobile kitchens with microwave ovens went to various localities demonstrating the advantages of microwave cooking Samsung launched a special marketing campaign for Flat TVs with focused advertising campaigns, Duniya Hai Gol, TV Flat and attractive exchange offers

Marketing and Promotion Strategy

66

Success StrategyParameter Manufacturing/Distribution/Su pply Chain Details To display Samsung products in a more lifestyle ambience and to communicate the product benefits in a more interactive manner, Samsung India has set up a widespread network of Samsung Digital Plazas all over the country The company-owned outlets remain a key strategic toolSamsung will add another 30 showrooms to its existing over 100 in FY08. Over the next few months, the existing Samsung Digital Homes will all be rebranded Samsung Plaza, in keeping with the global practice Samsung India has a network of 19 branches and 16 Area Sales Offices (ASOs) located all over the country. The Sales and Marketing function at Samsung is primarily divided into two categories: Sales and Marketing (IT) Sales and Marketing (AV/HA) Apart from sales to households through its robust distribution channel, Samsung India also has a huge clientele in the institutional sales space. Therefore, there is a separate department devoted completely to this function. It is the VMB (Vertical Market Business) department that is responsible for making sales to institutions such as airports, hotels, banks, movie theatres Samsung Telecommunications intends to redefine its distribution and retail strategy. At present, Bangalore-based United Telelinks distributes its products in the south, while Delhi-based Telemart Communication (India) Pvt. Ltd handles distribution across the rest of the country. Samsung is looking at expanding its network of secondary distributors or redistributors; these distributors are the ones that reach out to retail outlets and service them. According to Sunil Dutt, Country Head, Samsung Telecommunications India, In the next two weeks, we will be reevaluating the entire distribution network. Once we add more re-distributors, we shall reach more retail outlets. In 2002, Samsung India's distribution network was strengthened when the company began local production of airconditioners in India. According to R Zutshi, Vice President, Sales, Samsung India Electronics, the domestic production of Window ACs, gave the company the flexibility and the range to consolidate its position in the AC market

67

Sony IndiaCompany Fact Sheet Established In Managing Director Corporate Office Corporate Website Presence in India 1995 Masaru Tamagawa A-31, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi-110044 www.sony.co.in In India, Sony has its footprint across all major towns and cities through a distribution network comprising of over 7000 channel partners, 215 Sony World and Sony Exclusive outlets and 21 direct branch locations Sony India also has a strong service presence across the country with 21 company owned and 172 authorized service centers Delhi, Haryana, Ludhiana, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad, Vijayawada, Jaipur, Chandigarh, Lucknow, Pune, Ahmedabad, Indore, Cochin, Coimbatore, Ghaziabad, Guwahati, Hubli and Ranchi

Business Areas and Main Products Category Consumer Electronics Main Products Televisions, Projectors, Hi-fi Audios, Home Theater systems and DVD players, Personal Audio (CD/Cassette Radio Players and Walkman), Audio Video Accessories, Car Audio and Visual Systems, Camcorders and Digital Still Cameras NA Notebooks, Gaming Consoles, Digital Imaging Accessory (Batteries, Chargers, Microphone, Photo Printers), Storage Disks, Memory Sticks, Computer Accessories GSM hand sets, Mobile Phone Accessories

Home Appliances Computer Products

Mobile Phone

68

Sony CorporationCompany Fact Sheet About the Company Sony Corporation is one of the global leaders in consumer electronics, especially in the HD (High definition) arena and is therefore, well positioned to maximize its technological strengths through value creation in new product categories Sony India, established on 17 November 1994 in New Delhi, has branch offices all over the India. It is a subsidiary of Sony Corporation of Japan The company has established itself as one of the leaders in the industry through the introduction of latest technology, digital concepts, and high-quality customer services The growth of the company in India is seen through increasing sales and revenues. The sale revenue generated in FY07 was INR 5.96 billion, which represents an increase of 26% compared to the revenues of FY06 The company has restructuring plans to reduce its costs globally by JPY 200 billion by 2008: 11 out of 65 manufacturing sites to be closed or consolidated 20% reduction in product model count 10,000 person head-count reduction The company has plans to establish market leadership in the television business by rationalizing manufacturing sites, increasing the ratio of internally sourced components and centralizing engineering functions Sony would make HD-World the major profit-pillar for the company, establishing a range of broadcast and consumer hardware products, and content assets In addition, it is strengthening its software development to ensure interoperability and improved user interfaces through establishing a Technology Development Group, introducing unique products ( e.g. walkman phones) that leverage Sonys electronics and entertainment assets and developing Cell-based technology, products and applications through the establishment of its Cell Development Center With the electronic and consumer durables industry growing at 13.2% annually representing revenues of USD 61 billion, the company needs to strengthen its cost control measures and restructuring initiatives, as it was facing certain marketbased and self-imposed structural challenges that were affecting its ability to compete efficiently Sony needs to identify certain areas that would be key to its future growth, including high-definition, software development, and digital content; along with the introduction of new products and solutions that will help in making the company generate more profit The companys multifunctional products are endorsed by a wide range of customers worldwide. The launch of PlayStation*3 and technology formats, including the Blue-ray Disc are expected to help Sony emerge as a leader

Strategies

Outlook

69

Success StrategyParameter Tag-line USP/Positioning Its a Sony. Sony. We Help Dreamers Dream. Sony is a company devoted to the celebration of life. We create things for every kind of Imagination. Products that stimulate the senses and refresh the spirit. Ideas that always surprise and never disappoint. Innovations that are easy to love, and effortless to use, things that are not essential, yet hard to live without. We are not here to be logical. Or predictable. We're here to pursue infinite possibilities. We allow the brightest minds to interact freely, so the unexpected can emerge. We invite new THINKING so even more fantastic ideas can evolve. creativity is our essence. We take chances. We exceed expectations. We help dreamers dream. When people are asked what Sony means to them, one gets responses as "high quality, innovative, expensive but worth the money, latest features, user-friendly, intuitive interface designs, and cool electronics." Brand promotion Introduction of diverse TV commercials and conducting road promotional shows in metros and mini metros Allocating approximately 45% of its turnover for advertising and marketing Launching products and offers during festival seasons Acquiring exclusive cable and satellite TV rights for live telecasts of ICC cricket tournaments to be held from 2002 to 2007 Tying up with car manufacturers like Hyundai for the supply of car audios Tapping rural and semi-urban markets: Sony is tapping the rural and semi-urban markets to increase its customer base by launching customized products at affordable prices. Sony launched Xtreme VCD hi-fis with MP3 playback facility for the semi-urban consumer and middle-income group Venturing into retailing Sony has opened retail outlets called Sony World and Sony Exclusive Stores at various cities apart from metros and mini-metros. Sony India has 40 Sony Worlds and 60 Sony exclusive showrooms. Sony World is involved in test marketing Sony products and is also involved in consumer research Details

Marketing and Promotion Strategy

Manufacturing/Distribution /Supply Chain

70

Crompton GreavesCompany Fact Sheet Established In Chairman Corporate Office Corporate Website Presence in India 1878 G Thapar 6th Floor, CG House, Dr. Annie Besant Road, Worli, Mumbai, 400 030 www.cglonline.com Crompton Greaves' business operations consist of 21 divisions spread across Goa, Maharashtra, Gujarat, Madhya Pradesh, Tamil Nadu, and Karnataka It also has a strong marketing and service network with 14 branches in state capitals managed by its four regional sales offices located in Mumbai, Delhi, Kolkata, and Chennai35 33.56

Business Areas and Main Products Category Consumer Electronics Home Appliances Computer Products Mobile Phone Main Products Fans, Exhausts, Mixers, Iron, Lights, Luminaries NA NA

30 25.42 25

20 15.21 15

16.96

10.41 10

NA5

F 03

F 04

F 05 Net ales INR billion

F 06

F 07

71

0

Crompton GreavesCompany Fact Sheet About the Company Crompton Greaves Ltd., headquartered at Mumbai, is one of the largest private sector enterprises in the country It designs, manufactures and markets electrical equipments, products and services related to power generation, transmission, and distribution The company operates in four business lines: Power Systems, Consumer Products, Industries Systems, and Others. It is one of the top 10 transformer manufacturers in the world Crompton Greaves forayed into the global market by acquiring Belgium-based Pauwels Group in May 2005. It plans to capitalise on facilities and the network of Pauwels Group to enhance its umbrella of products and service offerings Crompton Greaves Ltd. (CGL) is to take over electricity supply for INR 2.8 billion in Nagpur, the second capital of Maharashtra, from January 2008 In May 2007, CGL concluded an agreement to purchase share of 9MHL for an enterprise value of EUR10.5 million The second key development during FY07 has been the creation of an integrated CG power business. This presently consist of the transformers, switchgear and engineering project businesses of CGL, Pauwel and Ganz, which will encomp