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White Goods & Durables

Analysis of Fans industry – Differentiation driving realizations upwards

We believe the incumbents like Crompton, Bajaj Elec and Havells are key beneficiaries of steady growth in fans industry in India as (1) The industry is growing in high single/ low double digits, (2) Due to steady launches of premium products and distribution expansion by organized players, they are gaining share from smaller/ unorganized players, (3) The premiumization opportunity as well reducing replacement cycle offers steady growth over next decade. The distribution penetration (outlets/ Universe of outlets) is just 50% even for the market leader Crompton indicating strong opportunity to expand distribution. Limited participation by MNCs in fans also results in lower competitive pressures for incumbents. We believe Crompton has advantage of established brand, distribution and large product portfolio and expect it to be a long term winner.

Steady growing market and sub-segments:

The fans market is ~Rs120bn and is growing in high single/ low double digits. Key growth drivers are increase in pucca houses, rural electrification and steady shift from unorganized to organized. The key sub-segments are ceiling fans (~72% of market), Table, Pedestal & Wall fans (20%), Exhaust and Industrial fans (8%). There exists a small segment of kitchen fans too. Fan companies have also introduced multiple premium fans across sub-segments.

Key players and market shares:

Crompton Greaves is the market leader with 27- 28% market shares. Other key players in the industry are Havells, Bajaj Electricals, V-Guard and Polycab. Due to steady investments in distribution and innovation, Crompton has steadily gained market shares over past four years.

Steady shift towards organized industry:

The share of organized industry has moved from ~65% in FY14 to ~70% now. Higher investments in distribution and impact of demonetization, GST and covid on business model of unorganized sector have resulted in organized players gaining market shares.

Rising share of premium price point based fans:

The fans industry is divided in three segments as per price-points. The economy fans are priced up to Rs1,500 whereas Standard fans are priced between Rs1,500 to Rs4,000. The premium fans are priced higher than Rs4,000.

Differentiation is key:

Apart from basic functionality of fans, the durables companies have introduced fans with multiple other benefits. The benefits include

(1) better reach of air / better area coverage,

(2) lower consumption of electricity,

(3) superior colors and aesthetics and

(4) anti-dust. We believe the steady innovation will continue to drive growth of the industry. The differentiated fans enjoy better 10- 50% better realizations compared to basic fans.

Sector view & top picks:

Considering strong return ratios and healthy growth potential and low penetration levels, we remain structurally positive on White goods and durables sector. We also expect the migration from unorganized to organized sector to steadily generate value. Havells and Bajaj Electricals are our top picks. We have ADD rating on TTK Prestige.

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