Inventory had piled up for makers of fans and air conditioners to refrigerators as rising prices and a high base dented demand. There is one more dampener this year: unseasonal rains.
Abnormal weather, particularly in North India, has compelled companies specialising in cooling products to reduce production by up to 35%. Industry executives interviewed by BQ Prime said the business in the region that accounts for about 40% of overall summer sales slowed down as unexpected rains in April, May and first half of June lowered temperatures.
"The industry was expecting good demand this year after several lost summers due to Covid-19 and high inflation," said Kamal Nandi, business head at Godrej Appliances Ltd. “But that has not happened.”
North India recorded its coldest May in 36 years, with average temperatures reaching as low as 36°C as against the usual 43-44°C, according to the India Meteorological Department.
During their fourth-quarter earnings call, companies such as Havells India Ltd. and Blue Star Ltd. highlighted the adverse impact of incessant rains in the northern part of the country on summer sales. In a note released on June 15, HDFC Securities Ltd. said a weak summer season “will have its bearing on Lloyd and the fan business".
Blue Star also said that sales in North India were "soft". However, the AC-maker noted that the inventory position was "normal" in other regions such as the west, east, and south, which were performing well.
Avneet Singh Marwah, chief executive officer at Super Plastronics Pvt.—the exclusive brand licensee of Thomson in India—agreed. Demand is down by about 30% over the previous year, he told BQ Prime.
Warehouse capacity constraints, both in e-commerce and large-format retailers, is a major concern. Marwah said they are "waiting to liquidate piled up inventory". "These seasonal products are now affecting sales of other appliances due to limited space," he said.
Thomson, the online-only brand, has cut its production by as much as 35%.
According to data shared by the Retailers Association of India, sales of consumer durables and electronics remained muted in April and May, after registering double-digit growth in March. In April, sales grew 9% as compared with the previous year; while in May, it grew at a slower pace of 5%.
Expectation Vs Reality
The peak season for cooling appliances was disrupted in 2020 and 2021 due to multiple waves of Covid-19, resulting in almost zero sales for appliance-makers. However, companies managed to recover some of their losses in 2022.
Soaring temperatures and increased probability of heatwaves, coupled with the normalisation of commercial activities this year, motivated several dealers to stock up on inventory in anticipation of another year of good sales.
However, the summer of 2023 has been predominantly bleak, with some companies labelling it as the "worst summer" in several years.
Nilesh Gupta, director at Vijay Sales, anticipates a 20% decline in sales for the cooling products category during the first quarter until June 20.
Analysts at ICICI Securities expect revenue growth for white goods manufacturers to remain weak in the April-June period, even as deflation of commodity prices may offer some relief to margins.
According to the brokerage, all major raw materials are currently experiencing deflation. “The prices of aluminium, copper, steel, and HDPE have corrected 16%, 5%, 11%, and 13%, respectively, over the previous year.” The prices have also declined quarter-on-quarter, it said.
The reduction in input costs may lead to a year-on-year margin expansion of 100-300 basis points in Q1 FY24. Yet, analysts do not expect companies to pocket all the benefits. Instead, they anticipate that companies will invest their gains in increasing trade schemes and discounts, enhancing consumer offers, boosting R&D expenditure and launching new products.
"We believe increase in trade discounts is imminent in white goods, considering there is steep competitive pressure," ICICI Securities said.
Despite higher trade schemes and consumer offers as compared with the previous quarters, it did not translate into sales, particularly in North India, due to erratic weather patterns. "We believe the volume off-take is likely to be muted on a year-on-year basis," analysts at ICICI Securities said.
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