Household Appliances November 215
Household Appliances Global Industry Domestic Industry Industry Structure Outlook AGENDA
Global Industry Core Markets: Mature markets Slow population growth Replacement products dominate sales Growth Markets: Rising standards of living Steady population growth Large number of new households with ability to buy appliances Growth in global demand due to strong growth in emerging markets
Global Industry USD (bln) China the global leader in Production and Consumption United States biggest importer of home appliances 9 8 7 6 5 4 3 Global Production (value) Actual Projected 2 1 212 213 214 215 216 217 218 219 22 Global Production Country Production Value (USD bln) in 213 Share China 147 34% United States 54 13% Japan 46 11% Germany 34 8% South Korea 16 4% Other 429 31% Total 725 1% Country Consumption Value (USD bln) in 213 Share China 18 25% United States 68 16% Japan 51 12% Germany 31 7% Russia 16 4% Other 426 36% Total 699 1%
Western Europe - Widely varying consumer patterns Global Industry CORE MARKETS North America - Mature market with high penetration Oceania & Japan - High penetration in Oceania - Overcapacity due to large number of manufacturers & brands - Slow macroeconomic recovery - Demand growth potential in energy-efficient and compact products - 4 major retailers constitute 7% of sales - Economic recovery to generate sector growth - Demand growth for appliances expected to continue - Demand driven by design, water and energy efficiency - Japan dominated by domestic manufacturers - Demand driven by compact products Population 418 mln Population 358 mln Population 155 mln Average # of persons per household: 2.3 Average # of persons per household: 2.6 Average # of persons per household: 2.5 Urban Population 78% Urban Population 83% Urban Population 92% The industry is divided into two groups: major appliances and small appliances. Major appliances are household appliances that are stationary due to their size and weight. Small appliances are those that are easier to move.
% of household % of household % of household USD (bln) USD (bln) USD (bln) Units (mln) Units (mln) Units (mln) Global Industry CORE MARKETS Western Europe North America Oceania & Japan 6 Market Demand for Major Appliances 6 Market Demand for Major Appliances 6 Market Demand for Major Appliances 5 5 5 4 4 4 3 3 3 2 2 2 1 1 1 29 21 211 212 213 214 29 21 211 212 213 214 29 21 211 212 213 214 5 Market Value 4 Market Value 25 Market Value 4 3 2 1 3 2 1 2 15 1 5 Major Appliances Small Appliances Major Appliances Small Appliances Major Appliances Small Appliances 1 9 8 7 6 5 4 3 2 1 Refrigerators Product Penetration Washing Machines Microwave Ovens Dishwasher Air Conditioners 1 9 8 7 6 5 4 3 2 1 Refrigerators Product Penetration Washing Machines Microwave Ovens Dishwasher Air Conditioners 1 9 8 7 6 5 4 3 2 1 Refrigerators Product Penetration Washing Machines Microwave Ovens Dishwasher Air Conditioners
Africa, Middle East & Eastern Europe - Product penetration low in Africa & Middle East, but high growth potential - Eastern Europe has high potential for replacement products - Increasing purchasing power of households in Africa and Middle East Global Industry GROWTH MARKETS Latin America - Growth driven by growing middle class - Brazil accounts for half the sales - Slowdown in economy - Demand growth for energy & water efficient products South & Southeast Asia - Economic growth, rapid urbanization, small living spaces & rapidly expanding middle class - Demand potential for Cookers, Refrigerators & Air Conditioners - Low product penetration - Demand growth for energy efficient products Population 1,393 mln Population 622 mln Population 3,8mln Average # of persons per household: 5.9 Average # of persons per household: 3.7 Average # of persons per household: 3.8 Urban Population 45% Urban Population 79% Urban Population 44%
% of household % of household % of household USD (bln) USD (bln) USD (bln) Units (mln) Units (mln) Units (mln) Africa, Middle East & Eastern Europe Global Industry GROWTH MARKETS Latin America South & Southeast Asia 25 Market Demand for Major Appliances 6 Market Demand for Major Appliances 3 Market Demand for Major Appliances 2 15 1 5 5 4 3 2 1 25 2 15 1 5 29 21 211 212 213 214 29 21 211 212 213 214 29 21 211 212 213 214 2 15 1 5 Major Appliances Market Value Small Appliances 25 2 15 1 5 Major Appliances Market Value Small Appliances 7 6 5 4 3 2 1 Major Appliances Market Value Small Appliances 1 9 8 7 6 5 4 3 2 1 Refrigerators Product Penetration Washing Machines Microwave Ovens Dishwasher Air Conditioners 1 9 8 7 6 5 4 3 2 1 Refrigerators Product Penetration Washing Machines Microwave Ovens Dishwasher Air Conditioners 1 9 8 7 6 5 4 3 2 1 Refrigerators Product Penetration Washing Machines Microwave Ovens Dishwasher Air Conditioners
USD (bln) Global Industry Six companies contributed to 2% of global sales in 214 LG Home Appliances market leader (6%) Whirlpool (4%) Electrolux (3%) Haier Whirlpool Bosch-Siemens LG Home Appliances 3 25 Global Market Leaders Revenue Samsung AB Electrolux 2 15 1 213 214 5 - LG Home Appliances Whirlpool AB Electrolux Bosch & Siemens
Domestic Industry Small Scale Manufacturing (13%) Manufacturing & Mining Large Scale Manufacturing (8%) Slaughtering (7%) Textile Food, Beverage & Tobacco Coke & Petroleum Products Iron & Steel Products Non-Metallic Mineral Products Automobiles Fertilizers Pharmaceuticals Paper & Board Electronics Manufacturing Sector: 13.3% of GDP 14.2% of employed labor force Large Scale Manufacturing: 1.6% of GDP 8% of Manufacturing Sector Sr. # Large Scale Manufacturing - Top 1 Groups Weight - Quantum Index of Manufacturing 1 Textile 2.9% 2 Food, Beverages & Tobacco 12.4% 3 Coke & Petroleum Products 5.5% 4 Iron & Steel Products 5.4% 5 Non-Metallic Mineral Products 5.4% 6 Automobiles 4.6% 7 Fertilizers 4.4% 8 Pharmaceuticals 3.6% 9 Paper & Board 2.3% 1 Electronics 2.%
# of units Domestic Industry Production Home Appliances production growth in Pakistan Refrigerators production increased 12.5% YoY Deep Freezers production increased 5.5% YoY Air Conditioners production decreased by 3.3% YoY Home Appliances Pakistan Production 1,6, 1,4, 1,2, 1,, 8, 6, 4, 2, Refrigerators Deep Freezers Air conditioners FY11 986,941 87,125 257,42 FY12 1,58,177 53,85 252,71 FY13 1,21,377 6,773 278,48 FY14 1,3,523 83,94 39,223 FY15 1,462,874 88,522 299,1 Pakistan Product Penetration Low product penetration for Refrigerators and Air Conditioners 1.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Television Washing Machine Refrigerator Air Conditioner Urban Rural Total
Units PKR Domestic Industry Demand Outlook Factor Status GDP Growth FY15: 4.2% ; FY16E: 4.5% Population 214: 185 mln GDP Per Capita 214: USD 1,318 Urban Population 214: 38% (7 mln) 4% 39% 38% 37% 36% 35% 34% 33% 32% 31% 3% Pakistan Urban Population 25 26 27 28 29 21 211 212 213 214 Average Persons per Household 6.4 (Urban: 6.2; Rural: 6.5) Number of Households 29 mln Pakistan Production & Disposable Income 1,6, 16, 1,4, 14, 1,2, 12, Improvement in standard of living 1,, 8, 1, 8, 6, 6, Increasing disposable income 4, 2, 4, 2, High potential for demand growth of home appliances 211 212 213 214 215 Refrigerators Deep Freezers Air conditioners Gross National Income per Capita (RHS) -
Domestic Industry Competitors 4% 35% 3% 25% Pakistan Refrigerator Market Share in 214 2% 15% 1% 5% % 37% 23% 14% 14% 7% 4% Dawlance PEL Orient Haier Waves Others Industry dominated by domestic players High concentration: Top 3 players comprise 75% Refrigerator market share Top 3 players comprise 68% AC market share 3% 25% 2% 15% 1% 5% % Pakistan Air Conditioners Market Share in 214 26% 23% 19% 17% 1% 5% Orient Haier Dawlance Others Kenwood PEL
Industry Structure Manufacturers have no control over raw material price Supplier Bargaining Power HIGH 4 dominant domestic players Availability of Imported products Intensity of Competitive Rivalry HIGH Competitive Customer Bargaining Power HIGH Availability of competitor products Ease of brand switching No substitutes for refrigerators AC / microwave / deep freezer substitutes available Threat of Substitutes MEDIUM Barriers to Entry HIGH Project setup is capital intensive Energy shortage High R&D costs
Sales in PKR or Volumes Domestic Industry Lifecycle Time
Domestic Industry Outlook Outlook Positive Growing urbanization and standard of living Higher disposable income Low product penetration room for growth Depreciation of PAK Rupee higher cost of production Slowdown in economy could hamper demand
Bibliography 1. Pakistan Bureau of Statistics 215 - http://www.pbs.gov.pk/qim 2. Pakistan Economic Survey 214-15 Manufacturing & Mining - http://www.finance.gov.pk/survey/chapters_15/3_manufacturing.pdf 3. Mexico Ministry of Economy The Household Appliance Industry 213 - http://mim.promexico.gob.mx/work/sites/mim/resources/localcontent/321/3/1311_ds_electrodomesti cos_en.pdf 4. Pakistan Demographic and Health Survey 213 - http://www.nips.org.pk/abstract_files/pdhs%2final%2report%2as%2of%2jan%222-214.pdf 5. Electrolux Annual Report 214 - http://www.electroluxgroup.com/en/wpcontent/uploads/sites/2/215/2/electrolux-annual-report-214.pdf 6. Whirlpool Annual Report 214 - http://files.shareholder.com/downloads/abea- 5DXEK8/812956175xx81466/47F8CBA-C5F9-49C2-BCD-762661949D15/Whirlpool_214AR.pdf
Analysts Zain Tariq Senior Financial Analyst zain.tariq@pacra.com Aisha Khalid Manager Ratings aisha@pacra.com Rana M. Nadeem Unit Head Ratings nadeem@pacra.com Contact Number: +92 42 3586 954 DISCLAIMER PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation should not be relied upon as professional advice.