Going flat out

The demand for flat television sets is increasingly edging out the conventional models

Last year, the Rs 1,500 crore television tube manufacturer, Samtel became the first Indian original equipment supplier (OEM) to set up a separate production line for flat picture tubes. When production commenced nine months ago, Samtel made only 10,000 flat picture tubes a month.

Today, it rolls out 1,20,000 tubes a month and Satish Kaura, Samtel's chairman & managing director is pitching a monthly target of 1,50,000 by December. By then, it would have invested a total of Rs 450 crore in the flat tube line. "It is a huge opportunity and I think we have got in at the right time," says Kaura.

His investments are understandable. All the major television manufacturers "" LG, Sony, Samsung, Mirc Electronics (makers of the Onida brand), Videocon and Philips "" are increasingly tuning into the demand for flat TVs, which made their appearance barely three years ago.

Just two years ago, flat television panel sets accounted for a mere 6 per cent of the 6.4 million colour TV (CTV) market. This year, it is estimated that 35 per cent of the 9 million-unit CTV market will be flats.

Also, while conventional (curved) TVs grew 10 per cent to 12 per cent last year, flats went flat out with a 150 per cent growth rate. And players reckon that this gallop will continue till at least 2007, when half the Indian CTV market will be dominated by flat sets.

Out of the total one million sets sold by Korean player LG in 2002, 75,000 were flats. This year, of the 2.4 million sets that LG plans to sell, one million will be flat. Even at LG's 52-acre Noida factory, of the 1.4 million unit capacity, flat sets account for already 40 per cent of production is flats. And by 2007, half its production will be flat TVs.

It's the same story with other players. At the Rs 1,005-crore Mirc Electronics, revenues from flat sets was barely Rs 50 crore two years ago. Today, flat sets contribute Rs 140 crore to the topline. This, when 75 per cent of Mirc's revenues come from CTVs. By next fiscal, Mirc expects flats to contribute Rs 400 crore to turnover.

To ensure that happens over the last three years, it has invested Rs 18 crore in product development. Similarly, flats accounted for 35 per cent of Philips Consumer Electronics' Rs 510 crore turnover till last August.

Even Snehaanjali, a Mumbai-based multibrand white goods dealer with five showrooms in the suburbs is stocking up on flats. Today, all its outlets sell roughly 2,000 CTVs a month, up from 800 CTVs (with only three showrooms) three years ago. Of these, monthly sales of flats is 1,400-1,500 sets compared to 200 flat units sold three years ago.

It's not that only consumers in larger cities or metros are patronising flat TVs. Today, even small cities like Muzaffarpur in Uttar Pradesh are lapping up flat screen televisions instead of the conventional curved models.

"In a couple of years, the flat television will become mainstream, just like the shift from black & white to colour happened a few years ago. But in this case, the growth will be phenomenal," says V Chandramouli, vice president - marketing, sales & service at Mirc Electronics.

But why are flat TVs so much in demand? It isn't just better technology and picture quality that is making consumers go ga-ga. A big draw are the prices which have nosedived. Three years ago, a 21 inch flat TV retailed between Rs 20,000 to Rs 22,000.

Today, the same model probably carries a Rs 11,000 to Rs 12,000 tag. "Economies of scale, reduced prices of flat picture tubes, competition and reduced import duties, have all led to this decline in prices," says D Shivakumar, executive director, Philips India.

This scenario is even played out globally, where flat picture tube manufacturers who supply to players like LG, Onida and Samsung, have ramped up capacities to reap the benefits of economies of scale.

As a result, in India, flat picture tubes today cost Rs 2,000 to Rs 3,000 less per unit compared to three years ago. And with a picture tube constituting 65 per cent of the total CT cost, the effect on price is significant. Also import duties in India have halved to 20 per cent today, compared to three years back.

Not only has this made flats more affordable, they have a price parity with their better known counterparts "" the conventional models.

"The flat TV is now no longer the premium product or fashion accessory it used to be. It is accessible to the common man," says Samsung's director-marketing, Ravinder Zutshi.

So if three years ago, flats attracted more than a 20 per cent premium over conventional models, the differential today, is barely 5 per cent to 8 per cent.

"The replacement market has got a fillip because of the flats," says Mirc's Chandramouli. Today, of the total CTV market, 5.5 million sets are picked up by first timers, while the balance caters to the replacement or upgradation market.

And prices could slide further down. That's because, the Korean players and Philips import 90 per cent to 95 per cent of their flat picture tube requirements from Malaysia and Thailand. Like all other categories, indigenisation would further impact prices of flat sets.

According to consumer durable audit firm ORG-GFK, currently, the flat segment is dominated by LG with a 27 per cent market share, up from 11 per cent three years ago, It is followed by Samsung with a 22 per cent share.

Clearly, with a growing demand, players are not only trying to straddle different price points but offering differentiated features in models. Like LG, Onida and Samsung today have about seven to eight models in the fastest growing segments "" 21-inch and 29-inch "" each with varying features.

Samsung recently launched a 15 inch flat TV to attract the customers who would have otherwise settled for a 14-inch conventional model. "The idea is to offer better value at differing price points suitable for different consumer sets," says Zutshi.

Even marketing and advertising strategies of players are geared towards selling more flats. Take Mirc which has ramped up distribution for its Onida flats. Today, all its 2,000 direct dealers sell flats compared to only 1,000 who sold them two years ago. Even the sub-dealers selling flats have gone up from 1,000 to 4,000 in the same period.

Today, 90 per cent to 95 per cent of LG's outlets sell flat TVs with 45-50 per cent of the demand coming from semi-urban and rural areas. No wonder, LG is splurging its entire Rs 100 crore CTV ad budget on flats and doesn't advertise its conventional models.

"Even we weren't expecting this kind of growth. This has been largely triggered by the technology and the awareness of better picture quality," says C M Singh, national head, consumer electronics, LG Electronics India.

The trade too is equally gung-ho as flats continue to attract higher margins than the regular sets. The margins on conventional units are about 6 per cent to 7 per cent compared to a 12 per cent to 14 per cent margin on flat TVs. "That gap will also disappear and soon it will be a question of which brand to sell rather than which TV," says a Mumbai-based dealer.

Will all this mean the death of the conventional non-flat? Says an industry source, "As long as India has a healthy penetration market, there will always be a market for all kinds of models." He points out to the black & white TVs which sell like hot cakes in the hinterland.

But with increasing competition and rock bottom rates, for now at least, flat is the way to go.