DEMONETISATION

Source: The Hitavada      Date: 25 Dec 2016 09:25:38


Little impact of demonetisation on HVAC industry; White goods sales impacted, but normalcy likely in 45 days


WE HOSTED calls with (a) a dealer of a leading HVAC
system manufacturer, and (b) a dealer of white goods
to understand the impact of demonetisation on their
business.
Key takeaways: Demonetisation has had no impact on business in the HVAC industry, as all transactions are routed through banking channels.
n Demand situation in the white goods industry (down 40-45% post demonetisation) is expected to return to normalcy over the next 45 days.
n Post demonetisation, cash transactions have declined to 5% as against 35-40% in pre-demonetisation era and transactions through finance have increased to 60-65% from 30-35% earlier.
n Most manufacturers are offering zero-interest EMI schemes and waiver of processing fees to revive sales.
n Daikin introduced its 1-tonne AC at INR24,000 in the festive season v/s INR30,000 earlier, and has taken share from Voltas (1-ton, 3-star AC at INR27,000); inventory will last till January.

Key highlights of call with HVAC (heating, ventilation and air-conditioning) dealer:

n No impact on business on account of demonetisation, as all transactions are routed through banking channels.
n Impact of demonetisation has been negligible, as the industry does not have cash transactions.
n Majority of the clients are corporate offices and IT companies; so there has not been much impact on sales. Contracts are getting executed smoothly and have not faced pushback from clients on account of cash crunch.
n There is a marginal impact at the operating level on low ticket items where cash transactions are involved.
n In the HVAC segment, VRF is doing very well. Daikin has taken market share. Hitachi has also become aggressive along with other Japanese brands like Toshiba, Carrier and Mitsubishi at the expense of Voltas and Blue Star.

Outlook: Business to continue to function normally, as it is not much impacted by demonetisation.

Key highlights of call with white goods dealer:

n Post demonetisation, sales have been impacted by 40-45% on account of currency crunch faced by customers. However, sales should return to normalcy over the next 45 days.
n Post demonetisation, cash transactions have declined to 5% as against 35-40% in the pre-demonetization era and transactions through finance have increased to 60-65% as compared to 30-35% earlier.
n Inventory level, which is normally 25-30 days, has increased to 40-45 days on account of dip in sales.
n Sales of high-ticket items (100k-125k) are impacted the most (down 60-70%) on account of demonetisation; the impact on small-and-medium-ticket items (down 25-30%) is relatively low.
n Most manufacturers are offering zero-interest EMI schemes and waiver of processing fees.
n There is no increase in credit period or discounts from the manufacturers.
Daikin introduced its 1-tonne AC at INR24,000 during the festive period v/s INR30,000 earlier, and has taken share from Voltas (1-ton, 3-star AC at INR27,000); inventory will last till January.