Financial Daily from THE HINDU group of publications
Tuesday, Aug 26, 2003
`Kelvinator will emerge as most respected brand'
New Delhi , Aug. 25
DETERMINED to regain lost ground in the densely populated consumer durables market, Electrolux Kelvinator Ltd (EKL), the Indian joint venture of the Swedish white goods major AB Electrolux, wants to focus on the three Rs of restructuring, rightsizing and repositioning during the current year. Given that the company is not entirely in the pink of health, Mr Rajeev Karwal, Managing Director & Chief Executive Officer, EKL, gives himself time till 2007 to emerge as the ``most respected brand in India''.
In an interview with Business Line, Mr Karwal shares his views on the road ahead which he agrees may be bumpy as `restructuring is not always easy'.
What accounts for the company's weak financial position? Do you think the restructuring measure adopted by the company has not paid dividend?
I agree we have not done well financially for the past couple of years. The company has been going through a major restructuring and rightsizing exercise. During this year, we are likely to be faced with one time costs and a decline in the top line. The reason for us not doing well financially is not because the consumer has not accepted the brand. The consumer continues to love the brand, which is reflected in the market share.
I think the reason for us not performing well is to do more with the fixed costs, which we have and the infrastructure probably is more than what is required. This is not so only for EKL. Other players in the industry are also facing the same situation. The reason is that the refrigerators market is a three million units segment, while the industry capacity is almost six million. So, at 50 per cent industry capacity utilisation, everybody wants to make more and sell more. As a result they bleed. What was the rationale behind the decision to divest or alienate in some form the assets of the Sanathnagar plant?
Due to the requirements of the Montreal protocol, we had to shift towards CFC (chloro-flouro carbons) free compressors and that is why EKL had to close down the Warora (Maharashtra) and Sanathnagar (Andhra Pradesh) compressor plants. The main reason was technology change. Besides, to have invested in those plants and converted them into CFC would not have made sense, so we have moved over to other suppliers for CFC-free compressors.
The Intron Ltd merger has been put under the spotlight now because of the controversy over the rights issue. The point raised by the Indian partners appears to be valid, that is, if Intron was to be closed down, then why was it merged with EKL?
Questions are being asked when the entire industry growth has slowed down and the category is not looking up. Intron production was shut for relocation. As a category, front-load washing machines is not doing well. When the market does not do well, the industry has to take a strong decision. For example, air conditioners have grown at a massive pace and today an AC is less costly than a front-loading washing machine. Further, washing machines have a human alternative. While the AC market has grown to 800,000 (from 300,000) units, the washing machines market has stagnated. When the company had acquired Intron, the category was growing at a rapid pace. While on the rights issue the matter is pending in front of SEBI, on behalf of EKL, I would like to say that the company has followed all good corporate governance norms.
AB Electrolux has already pumped in a lot of money into EKL. What is the thinking behind this move?
In an organisation, it is the responsibility of the stakeholders to do what is good for the entity that they have promoted or they jointly owned. Further, raising funds from the market place would be very expensive. Our majority holder, AB Electrolux, has pumped in a lot of subvention. They are giving financial assistance as they feel that they are carrying out their responsibility.
How has the market share of EKL behaved after the merger of brands? There is a common perception that the restructuring has not delivered benefits.
EKL is a very strong brand. In fact, Kelvinator is a brand that has the largest installed base of refrigerators in this country. It is like Tatas, Levers or Philips, which while being international brands also have an emotional relationship with the Indian consumer. Before commenting on restructuring, one has to look at the history.
The Kelvinator brand, which once enjoyed a good market position lost ground when it was under the Whirlpool umbrella, as their main focus was on the Whirlpool brand. Kelvinator reverted back to Electrolux when it entered into a JV with Maharaja International. But by this time, the brand had already suffered in the minds of the consumer. Even today, it enjoys a good 15-17 per cent market share.
What is the current market share of the merged entity?
Overall, it has come down from a peak of 29 per cent to 15 per cent now. But, the 29 per cent was with all the brands Electrolux, Kelvinator, Allwyn and Voltas. Now we have decided that we will concentrate on one core brand Electrolux Kelvinator. In the last 6 months the market share has not dipped and this is a healthy sign. Despite the fact that we have done a lot of restructuring and curtailed certain supplies and experienced certain shortages as we are restructuring, in the market place we still enjoy a very good equity with the consumer as well as trade partners.
Analysts feel that though there has been an increase in sales volume, the same has not reflected in value terms for EKL?
I don't agree with this. If you look at the figures of the industry, our price erosion has been the lowest. Even players like LG are said to have grown by 56 per cent in volume and 28 per cent value wise, in the first six months. I reiterate, industry capacity is more than sales and everybody want to utilise their capacity to maximum. Even this year there has been huge price erosion in the market place almost 11 per cent.
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