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Note ban chokes handset, electronics business

Handset and electronics business, one of the sectors worst hit by demonetisation, are looking at the government for relief.

business Updated: Dec 09, 2016 15:37 IST
The mobile handset business has fallen 50% after demonetisation
The mobile handset business has fallen 50% after demonetisation(HT photo)

New Delhi

Handset and electronics business, one of the sectors worst hit by demonetisation, are looking at the government for relief.

“The situation has deteriorated further from the beginning of the month when handset business was down 35% to 70%, depending on the region. Sales are now down 50% to 60% across regions,” an executive with a top handset maker said.

Earlier, industry body, the Indian Cellular Association (ICA), had written to the government and finance minister Arun Jaitley to allow the use of old notes in the market. The body has not yet received any relief action. “Decisions on our suggestions are yet to be taken,” an ICA spokesperson said.

“The electronics market moves from quarter to quarter. If the situation remains the same, then stocks of products will keep piling up and when new models are introduced, retailer and distributors will not have funds to bring them to the market. Hence, a government intervention will be necessary in January,” Sanchit Vir Gogia, ‎chief analyst, Greyhound Research, told HT.

ICA president Pankaj Mahindroo had earlier told HT that “brick and mortar channel, which amounts to 85% of sales, is the worst affected. Collections, which amount to R350- 450 crore daily, from several retail chains, were also down 50%. Feature phones are the worst hit as such small amounts are generally not offered on EMIs.”

Handset retailers do not have the money to pay distributors, which has also hit the cash flow of manufacturers, he added. “Orders for imports are placed at least two to three months in advance and payment terms are normally by a letter of credit (LC). The LC term may be 45 -120 days. Cash generated from current sales helps in opening new LCs for placed/committed orders and payment of LCs that are currently due. Demonetisation has currently left companies cash strapped and therefore companies are unable to bring in these orders or make payments for LCs.”

Counterpoint Technology’s senior analyst Tarun Pathak also said that the Indian smartphone market will contract by 10% during October-December due to demonetisation.Market research firm International Data Corporation (IDC) also echoed the same view.

“Cyclically, consumer purchases see a slowdown after the festival season in India. However, this year with the demonetisation process underway, the sequential decline is likely to be higher owing to the cash crunch the country has been facing since the second week of November. This has already resulted in significant slowdown of demand across PC and mobile devices; not just in offline retail but in online channel as well, where cash on delivery (COD) contributes to a substantial portion of the sales,” said Jaipal Singh, market analyst, client devices, IDC India.

The earlier estimates for cellphones has been revised downwards by 4.5%, he added. “The third quarter of 2016 saw smartphone and feature phone shipments at 32.3 million and 39.9 million units, respectively. The fourth quarter feature phone shipments are likely to decline by 24.6% and smartphones are expected to see a 17.5% decline sequentially.”

Similarly, the tablet PC market also witnessed a slowdown due to demonetisation. “From our earlier estimates for the fourth quarter of 2016, forecast has been revised down 3% to 5%. The revision in shipments is primarily in consumer segment due to sluggish demand, while commercial segment continues to be clocking healthy numbers and seems to be the least impacted by demonetisation. From 1.06 million units in the third quarter of 2016, the tablet shipments is expected to sharply decline sequentially by 23% in the fourth quarter,” said Karthik J, senior market analyst, client devices, IDC India.

The appliances market has been equally hit. “Our sales dropped almost 50% in early days. But we are now back to 90% of normal sales…We have seen 60% to 70% growth in purchases via finance schemes and about 60% payments are now happening via cards,” said Avijit Mitra, CEO, Infinity Retail, which runs the Croma retail chain.

Consumer durable makers have also taken a huge hit as the cash crunch has impacted sales, particularly in the smaller towns where most purchases are made via cash. “In the first week (after demonetisation), our business was down almost 80%. While things have recovered since, we were down about 40% till last week. The impact has been more in smaller towns, where there are more cash transactions,” said Kamal Nandi, executive vice-president, Godrej Appliances.