The coronavirus outbreak has disrupted the supply chain of the Indian consumer durables industry, which is highly dependent on China’s manufacturing units. Products that are imported from China include AC compressors, refrigerator compressors, small appliances, and LED chips. At the beginning of 2020, most compressor/appliances manufacturing units in China were shut due to the Chinese New Year; the outbreak extended this shutdown. China’s internal supply chain and shipment of goods is disrupted.
By the second week of Feb, there was some relief as some of the AC component-manufacturing facilities began to operate, but not at full utilization; challenges in internal supply chains continue to exist.
There is a silver lining though – our channel checks suggest most companies have maintained inventory for seasonal products such as ACs; c.45 days for Q4. Also, components-manufacturing units in China are likely to have adequate inventory as they start building for the season in November, which generally peaks in March. However, we believe if the situation prolongs, it may negatively affect Q1FY21. AC players have already taken price hikes due to the season, and to be on the safe side and considering the current situation in China, they could take more price hikes.
Our channel checks with AC importers revealed that it takes 30-35 days to receive a compressor from China and 10-15 days of manufacturing/assembling and dispatching to channel partners in India. Therefore, total time-to-market is c.45 days. To make goods available in April, they have to be ordered by the third week of February. Going by the current situation, we see a time lag of 10 days.
Improvement in China’s internal supply chain and restarting of shipments are important factors – should happen from the end of February. Once shipments start, the situation may normalize, or could still have a lag of 15-20 days. In the near term, we expect companies to hike prices by 3-5% and work on better inventory management.
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