Home Industry Trends Electrical fans industry to sustain growth story

Electrical fans industry to sustain growth story

Fans, till early 1990s, were considered to be an item of luxury and owning it in the house was a matter of pride. Even after owning a fan, operating it whenever you wanted was a matter of luck – thanks to frequent load shedding and unscheduled power cuts. But over the years, things have changed or improved – income of the common man has increased and availability of power has improved due to ‘power for all’ schemes. These two factors have changed the face of Indian fans industry for the better.

Thus, from an item of luxury fans have become one of the most highly penetrated consumer electrical goods over the years. Penetration of fans has been more than 70% with the category growing at a steady 7% CAGR with market size estimated to be Rs 9500 crore at the end of FY20. There are several factors that contribute to the growth of this industry and due to these factors, it may be able to double the market size much faster in future than in in the past.

Faster urbanisation

Presently, about 34% of the population in India is living in urban areas and this proportion is bound to increase phenomenally in the next 2-3 decades as urbanisation is picking up pace. Faster the pace of urbanisation better the demand prospects for electrical items like fans.

Increasing young population with rising income

Along with increasing urbanisation India is set to reap the demographic benefits. Increase in India’s young population and rising household income levels is creating demand for products like fans. Proportion of middle‐class households has risen from 30% in 2005 to 54% in 2018 and is forecasted to reach 78% by 2030. India’s 37% of the population is between age of 25‐49. Young population’s preference for better comfort, lifestyle, aesthetics and technologically advanced products is expected to drive increased demand for fans and other products.

Increased penetration of electricity connections

Rural electrification drive taken up by the government in recent years has resulted in household electrification increasing to 99% in 2019 compared to 67% in 2011 which has increased the addressable market for consumer electricals products like fans. Further, the government has come out with draft rules for providing 24 x 7 supply of electricity to all households which will further aid in increasing the penetration of electrical fans.

Shift from unorganised to organised sector

Series of events like demonetisation and introduction of GST signalled the death knell for unorganised sector in many industries in India and electrical fans industry too is not an exception to this general phenomenon. In simple words, loss of unorganised sector is the gain of organised segment. The outbreak of Covid-19 only exacerbated the situation and now the transition has gathered momentum.

Distribution expansion and advent of e‐commerce

Expansion in distribution especially in smaller towns and rural areas and advent of e‐commerce are also contributing to the growth of the industry in recent years. E‐commerce as a channel has made products available to the un‐distributed areas. This has enabled companies to market their products and create their demand in areas which otherwise would have taken a lot more time to reach.

Rising raw material cost

Rising commodity prices in recent months is a matter of concern for many industries. Prices of various commodities have seen  30-60% YoY surge in last few months. For instance, copper/steel/aluminum is up 15%/9/5% QoQ. Even plastic prices are seeing a strong upsurge, with prices of Polypropylene up 8% QoQ (35% YoY).

However, electrical Goods like Fans are not much impacted by these rise as they are able to pass on input cost pressures. Fans are small ticket size items and have higher replacement demand. At times, there may be a delay in price hikes by a month or so, but overall they tend to tide over commodity price inflation risks.

Revival of real estate sector in last few quarters (due to series of steps taken by the government and prevailing low mortgage rates) is a good news for the fan manufacturers as the demand from the new home buyers will pick up. Also, government housing schemes like ‘Pradhan Mantri Awaas Yojana’ will create sustainable demand for basic electrical products including electrical fans. Further, there is increasing proportion of replacement demand which will also add to the overall demand. This also provides enough cushion against any slackness in demand from real estate sector. Thus, if the past was good for fan industry, future looks even better.

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