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Price-cuts will further strain margins in TV industry, says study

The fierce competition in the Indian television industry has resulted in considerable pressure on the margins of the manufacturers and the future profitability would largely be a function of operating efficiencies and volumes, says a study paper of the Credit Rating Information Services of India Limited.

According to CRISIL, the pressure to effect further price-cuts coupled with the substantial deployment of resources in distribution, advertising and dealer credit is expected to further strain the margins of the players. Therefore, the rating agency anticipated relatively better financial performance from those producers who have the requisite brand equity and have adopted a volume-led strategy for growth.

In light of the relatively mature technology in the television industry, CRISIL believes that brand differentiation would increasingly be driven by price competitiveness and distribution and service strengths.

In this context, while the multinational companies have the advantage of high brand equity, perceived technological strengths and the ability to sustain losses, their success at establishing efficient distribution and servicing chains would determine their long-term market shares.

The continued success of the domestic players would largely be a factor of their facility to maintain their brand equity and offer acceptable quality at affordable prices.

The competitive structure of the Indian TV industry has undergone a transformation over the last couple of years, with the MNCs having garnered a considerable market share, estimated at over 30 per cent.

While the top Indian brands have continued to maintain their dominant positions, the MNCs have appropriated the market shares of several of the smaller companies and are likely to propel their future growth through the acquisition of marginal domestic players.

In the short to medium-term, CRISIL expects that the leading domestic brands would continue to maintain their dominant positions. However, in the long run, market shares are expected to be more or less equally divided amongst the top domestic as well as MNC brands.

The demand potential of the Indian television industry has been driven by low-penetration levels, increasing urbanisation and a large and vibrant middle-class. The steady lowering of import and excise duties over the last few years, combined with the advent of satellite television as well as the growing popularity of consumer finance has resulted in the industry witnessing double-digit growth rates year on year, until 1996-97, when growth rate slowed down considerably, primarily due to sluggish economic conditions.

However, the price wars during 1997-98 resulted in a significant market growth of about 20 per cent over the previous year. Replacement demand accounted for a sizeable proportion of 1997- 98 colour TV sales, propelled primarily by the narrowing of the price gap between CTVs and black and white TVs.

Consequently, B&W TV sales are reported to have registered flat or marginally negative growth rates during 1997-98. While in the medium-term, CRISIL expects the industry to maintain the pace of acceleration registered during 1997-98.

In the long run, however, growth rates are expected to stabilise at around 10 per cent per annum. With the narrowing of the price gap between CTVs and B&W TVs, CTVs are expected to cannibalise on the traditional B&W TV segment, to an extent. The prospects for the B&W TV segment would be dependent on the success of the rural market penetration strategies adopted by the industry players.

UNI