The index of industrial production (IIP) data for the month of October declined 35 percent year-on-year raising concerns related to decline in consumer demand.
Speaking to CNBC-TV18, Venugopal Dhoot, CMD, Videocon says IIP data might have been impacted by fewer production days. According to him, consumption trends continue to remain encouraging though festive demand this year was muted compared to last two years.
Dhoot is not worried about the short-term slowdown in consumer durable space and expects strong fundamentals to continue supporting long-term demand trends.
Meanwhile, Dhoot believes the spurt of e-commerce sales has taken the manufacturers by surprise. However, goods availability, discounts by e-commerce players are still questionable, he adds.
Below is verbatim transcript of the interview:
Q: We saw a near 35 percent year-on-year (Y-o-Y) fall in the consumer durable segment in the October IIP. Do you think this could be a one-of-in account of lower production days in the Diwali season or are more factors at play here, what is the on-ground situation like?
A: It could be aberration but only thing is that there are various factors. One is base effect. The other factor is that it is the month of October and festival was in October, so whatever production has taken place is in August-September only. So in October production was less.
One more factor is that nowadays because of the FTA with Thailand and other countries Indian manufacturers get their goods manufacture red in Thailand.
For example, Sony is manufacturing in Thailand and selling in India because there is zero duty and it is always good and economical to manufacture in Thailand and other FTA countries and so, production maybe coming down in India.
However, because of the Make in India facility given by the government of India, again people are thinking and becoming serious and you will see that this type of abrupt decline of about 35 percent will not be possible.
Only thing is that the demand in India is there, consumption is very high although global recession is going on, Indian consumers don't feel that recession. So market has been very good.
Although, IIP is going down, overall IIP is not that bad, it is growing 4 percent and the economic factors of India such as fiscal deficit are under control, around 6 percent growth is there, so looking at all these factors and S&P has maintained India's rating and there is upward rating everywhere, the economic parameters are good.
So by one factor of IIP, one should not worry especially for consumer durable which is a small fraction of IIP numbers is not that worrisome as long as Indian economy is concerned. Indian economy is on the right path and is going in the right direction under the leadership of our Prime Minister.
Q: A lot of your peers have pointed out that festive demand this time around is muted. Would you concur with that view and if yes, could you tell us what are the segments which are getting impacted negatively the most?
A: This time Diwali was not that good. Previous two years, festival was very good. This time it was not that good compared to last two years but Indian economy is moving and people are getting stability in the business. So in times to come, this will improve and the market has to improve for consumer durable because everybody requires everything.
I would also like to add here that in October there is demand for colour TV but in washing machine, refrigerator, air-conditioner in November-January there is no requirement of these products or requirement goes down. All these effects have taken IIP number down but I again repeat that, Indian economical parameters are doing very well.
We should not worry and inflation is also getting under control, RBI may reduce interest rate in times to come and consumer will be benefited for that and the market will restart again for consumer durables.
Q: Some of your peers within the consumer durable segment like Havells, Bajaj Electricals have scaled down their FY15 revenue guidance or muted demand growth. Your own numbers for the segment in the first half of the fiscal year are quite uninspiring, would you also cut back on the growth guidance for consumer durable segment, which is nearly 90 percent of your revenues?
A: No, we are not because we are not only in this consumer durable but we are in oil and gas and oil and gas business has been doing very well, we are getting a lot of new discoveries and that is why we are not that worried on consumer durables.
Vidoecon is becoming an oil company and so, we are not worried about the future results. However, contribution from consumer durable for a month or two will go down but in future, I am very bullish on consumer market in India because of the large population.
Everybody wants everything and otherwise and they will have it and that is the reason we have not shown any profit thinking or any forecast to be sobering. There is a possibility that this year there will not be more EBITDA or more profit coming from consumer durables.
Q: Big discounts by e-commerce companies have emerged as quite a threat for manufacturers like your, a lot of dealer surveys indicate that e-commerce discounts this festive season have led to 15-25 percent drop in traditional sales channels. Would such findings be accurate, would you agree with it?
A: No, all industry is confused on that because e-commerce goods are available at very cheap rate but that is not available in quantity, everybody doesn't get it but they do contribute to the price reduction and people feel that when the same good is cheaply available online, why to buy from the market and e-commerce companies cannot supply what is required for the market. But people think that some other day they will supply and people are not taking the good from the market and postpone their requirements and that is why the market is coming down.
It should not do anything with IIP numbers because this phenomenon started happening in October-November and now in December too. Still e-commerce competition is very high but how long they will survive and how long they will be making losses is not known and nobody can do the business only for losses.
So below market price selling by e-commerce will not be that easy only for the marketing gimmicks, yes two-three months it will be a problem for the real manufacturers in India.
Q: How are you seeing the fall in global metal prices like aluminium and steel? You will be a key beneficiary of this trend but by when will we see the softening commodity cost reflect in your margins?
A: Aluminium and steel are basic raw materials for appliances. Their prices are falling down, even copper prices are falling down so that will reduce the cost of appliances and that will be a great help. Nowadays prices are going up and there has been no control. Now at least first time, we will see that there will be possibility of reduction in price with a greater demand coming in times to come.
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