Profit margins are expected to remain stable in 2016, but competition is strong.
- Consumer durables sales continue to show robust growth. According to the India Brand Equity Foundation, sales are expected to reach USD 12.5 billion in the financial year 2016 after amounting to USD 9.7 billion in 2015. About two-thirds of retail revenues is generated from the urban population in India, fuelled by rising disposable income, easy financing and the growing popularity of e-commerce platforms.
- Profit margins are expected to remain stable in 2016, but competition is strong. Indian consumers continue to be very price sensitive, with sales price remaining the primary decision factor for purchase.
- While the Indian consumer durables manufacturing segment is primarily dominated by large and financially strong players, many businesses are leveraged as dependency on working capital funding remains high.
- Payment terms are 60 days-90 days on average. Overall, the payment experience in this segment is on average with other industries, with more payment delays registered in the small distributors segment.
Our underwriting approach is generally open for large consumer durables manufacturers and retail chains which are financially sound or part of larger groups. However, we maintain a more prudent approach on small and medium-sized retailers, as those generally operate on low margins and are impacted by multiple sourcing, tougher competition and price volatility. We maintain a cautious approach on highly leveraged businesses in this segment. Apart from financials, we also take into consideration the customer-buyer relationship and evidence of established trading experience.
- We observe a large amount of application traffic in the e-commerce segment, where exposure is growing rapidly and challenges remain in terms of capacity allocation.