Videophones, a product that used to be a novelty just a few years ago, has today become a fixture in every new home in tier I and tier II cities across the country. While manufacturing in India could be an option, thanks to low prices and high margins, importing them from China and selling in India makes more sense.
Andres M. Moilier | February 2017 Issue | The Dollar Business
A few decades ago, the rich had an army of lathi-wielding guards to secure the perimeter of their sprawling bungalows. There was no scope for electronic security devices and even the elite who lived in apartments only had a doorman for their security. But gone are those days! These days, almost all new apartments in Indian tier I and tier II cities come with installed security systems such as video door phones – thanks to a competitive real estate market. Even otherwise, the videophones and accessories needed for a complete security system are easily available in the market at affordable prices.
For the end-customer, whenever you feel like sprucing up security at your home, your to-buy list is sure to include video door phones and CCTV cameras. It’s an irony though that considering that China is at times considered a national security threat, most of our home security devices and videophones available in India are from China!
Growing Strong
While you would have seen videophones in the new generation of apartments, we are not basing our case for videophones just on visual evidence. The data from Ministry of Commerce, GoI, corroborates the evidence. Import of videophones [HS Code 85176290] is a $2.30 billion business in India. And that is a big number! Well, it is a comprehensive category, encompassing several types of videophones, including video IP phones, video conference phones, etc. However, the product that is driving this segment is video door phone – a much sought-after home security device in India today.
Talking about numbers, Manoj Khadkikar, Head - Channels & Solutions Group, Zicom Electronic Security Systems Ltd., says, “The $2.30 billion is a huge figure, but it encompasses various items, starting from accessories to IP video phones to conference video phones, etc. I think the number for actual multi-apartment video door phones is around 40% of the total.” But even 40% of $2.30 billion is $920 million! And that’s not a small number by any means.
What might sound even more alluring is that the imports are only growing, year-on-year. “In India, security systems were introduced during 1994-95. Though the public understanding of home security systems is still low in India, the sector is expected to grow at a CAGR of 32.49% through 2020,” says Khadkikar.
A Secure Future
So, what is driving or will drive the business? As per a report from Bengaluru-based RedSeer Consulting, “Efficient building management systems are fast gaining popularity in India. Lighting and security are the top-selling products in home automation, accounting for nearly 80-85% of the market. At a CAGR of 35-40%, the home automation industry is one of the fastest growing sectors in the country.” That is some encouraging news for importers of video phones and other security devices.
Further, according to importers, the sale of video door phones is mainly driven by the real estate sector. Rajesh Prabhakar of Video Door Phone India, says, “If the real estate business grows, we will grow. The after-market is also catching up, but it’s the builders and contractors who buy the product in bulk.” Seconding Prabhakar’s statement, Khadkikar, assures, “About 90% of the newly constructed buildings in India have one or the other form of video door phones. Naturally, they are a huge contributor.” If the Ministry of Commerce (GoI) data is anything to go by, the business has picked up pace in the last four financial years. Between FY2013 and FY2016, the imports of videophones has jumped from $948.80 million to $2.30 billion. That’s a whopping 142.41% growth.
Business was bad during FY2012 and FY2013, but that was because of rising inflation in India and the global economic slowdown. Imports value dropped from $1,171.94 million in FY2011 to $949.03 million in FY2012, which further fell to $948.80 million in FY2013. But India managed to pull through to become one of the fastest growing economies in the world and in the process the 11th largest importer of videophones. And, if you look at reports from India Brand Equity Foundation (IBEF) and Department of Industrial Policy and Promotion (DIPP), you may want to join this fast growing market right now! IBEF states that by 2020, the Indian real estate market would soar to touch $180 billion – that’s right! Meanwhile, DIPP reports that between April 2000 and March 2016, India’s construction development sector received $24.19 billion of foreign direct investment (FDI). And knowing that the videophone market grows hand-in-hand with the real estate market, the future promises to be bright.
Lifestyle Matters
Prabhakar comments, “Honestly speaking, the videophones market did very well in the last three financial years. FY2017 though hasn’t been a good one because of the overall economic environment in the country. I don’t think the market has gone down, but the growth won’t touch the figures we had anticipated for the year. And, given the changing spending habits in urban India, this market will scale new heights.”
Ansari Parvez Ahmad, Marketing Head of Citi Trading Co., a Mumbai-based videophone importer, hold similar views. “Indian families are becoming nuclear and security is becoming a growing concern. So, naturally, the dependency on devices such as video door phones is growing,” adds Ahmad.
Prosenjit Chakraborty, CEO of Login Eye, a distributor and retailer of video door phones from Zicom, CP Plus and Secura (a segment where prices range from Rs.6,000 to Rs.10,000) also has something similar to say. “People have become aware of home security surveillance systems, which is quite an encouraging sign for distributors and retailers.
The market is growing, but so is competition as a large number of importers, distributors and retailers have entered the market. But we have been able to hold on to our loyal customers. At the moment, builders are the biggest buyers, followed by house-owners,” says Chakraborty. On being quizzed if he would encourage entrepreneurs to invest in importing videophones, Chakraborty replies, “If you’re passionate about business, the future looks bright. But one should keep in mind that with the growth in overall import volume, margins are bound to shrink.”
At a CAGR of 35-40%, the home automation industry is
one of the fastest growing sectors in India.
This means the demand for video door phones will
continue to rise going froward.
Margins Talk
A growing and dynamic domestic market is obviously good news for importers, as the ecosystem to manufacture these products do not exist in India. Whatever little manufacturing happens in India is essentially assembling. You would think that would give importers the power to extract big margins. But the market has become complex with the entry of a wide range of products from different countries. What’s more? The quality also varies widely. Video door phones that are imported from US, Germany, Italy, Netherlands, UK, etc., can fetch a high margin as customers perceive them to be of high quality. “Margins depend on the product and market situation, and at the moment we pocket around 10% as profit. But I would say that retailers enjoy the maximum profit, which can go up to 30%,” shares Ahmad.
Even according to Rajiv Goyal, CEO, Cloud Infotech, another importer of videophones, “The margin is pretty attractive though it depends on the product and the country of origin. It ranges anywhere between 15% and 20%.” Importers say that though China is India’s largest source, margins on Chinese products are the lowest, and that is mainly because of the product quality.
Prabhakar tells us that the prices of video door phones range from Rs.5,000 to Rs.40,000. However, devices between Rs.8,000 and Rs.20,000 are preferred by Indian customers. And whatever be the perception about the quality of Chinese products, it is China-made videophones that dominate the market.
MAKE IN CHINA
And not to say, China is also the largest exporter of video door phones in the world, followed by US, Hong Kong and Netherlands. In CY2015, China’s total exports were $32.43 billion while exports from US stood at $18.50 billion. And when it comes to India, the country is China’s 8th largest exports market.
Though South Korea too has been a source of choice for India, India’s imports of videophones from South Korea saw a sharp drop of 66.71% (y-o-y) in FY2016. Interestingly, during the same period, imports from China saw a jump of 57%. Khadkikar clarifies, “Many factors such as pricing and quality, triggered the shift. China has emerged as the largest exporter because their product quality is consistent and the product is cheaper compared to others’. Chinese products may not be as good as those from other countries, but India as a price sensitive market cannot overlook China.”
Looking Ahead
Despite a positive business environment, importers are afraid of ambush attacks on their business, like demonetisation. According to many of them, business was slow during November-December period in 2016, which they say might continue. “Demonetisation impacted businesses across the country and we were no exception. I fear, its impact is likely to continue for a while. Also, this year, the Goods and Services Tax is likely to be implemented, which is yet another concern for the business.”
The market for videophones is directly linked to the real estate demand, which experts fear will drop as a direct consequence of demonetisation. But this is a phase that they believe will fade soon as they expect the Union Budget to provide a boost to the real estate sector.
Alongside the growing real estate business, the increasing need for stronger home security measures is what keeps importers optimistic about the future. What’s more? A video door phone needs to be updated every 3-5 years, which means there is a recurring demand for it. And this also means that as long as there remains a need to fortify homes, importers will continue to rake in profits!
"Most of our instruments are directly imported from China"
Tariq Un Nabi Khan
DIRECTOR,
FUTURA MARKETING
TDB: 15 years ago, the market for home security surveillance systems was small. What made you get into imports of videophones?
Tariq Un Nabi Khan (TNK): Of course, it was a small sector. But, I had a positive feeling that the business would grow big. In the initial days, people would ask me, “This is the product? How will you sell it and who will buy these things or will these ever sell in India?” But, now, look at the incredible market size. The only thing that the sector needs is a little push. Just a little public awareness will be able to do the trick. People living in tier II and III cities are still not aware of these products, or how to operate or install them, let alone their technical aspects. But that also means there is enormous opportunity for growth!
TDB: From what countries do you import videophones?
TNK: Most of our devices and instruments are directly imported from China. Some of the items are imported as finished goods while some are brought in as components – as for the latter, we assemble them here in India. The point is, be it Bosch or other renowned brands, most of them are made in China. But, when we try to sell video door phones under Chinese brand names, people think they are unreliable. So, almost all companies in India bring components from China, assemble here and sell them under Indian brand names.
TDB: Do you face any challenges while importing?
TNK: The Indian government is cooperative. But, I think the current customs duty is very high, which the government must lower or wave off completely. It must be understood that these items are a part of our country’s security system. It helps the government maintain law and order. So, why not be a little considerate towards its importers?
TDB: Is the business environment in India conducive for MSMEs like yours? What can the government do to give a boost to the sector?
TNK: I think most of the challenges in India exist because the government system is not streamlined. A small sector like ours is the last thing the government is concerned about. They don’t care about nurturing and encouraging small businesses. Also, I think the government must improve the basic infrastructure for small-scale industries and provide loans so that we can expand our businesses. In addition, the current tax system is business unfriendly. There is a sales tax, income tax, service tax, surcharge, etc., which must be clubbed together at the earliest for smooth business operations.
TDB: When it comes to infrastructure, how do you compare India to China?
TNK: The infrastructure in China is far better than that of India. I have been to China on numerous occasions and they are very easy to do business with. However, I would like to add that language barrier is a concern while dealing with them. It limits the level of communication and sometimes becomes a problem. Other than that there isn’t much to worry, especially when you have already built a rapport with them.
TDB: You said that the future looks good for your trade. What do you think will drive the business?
TNK: The industry shares a symbiotic relationship with the real estate business. And, with the growth of real estate, the video door phone segment will grow. We also receive a lot of curious walk-in customers as the spending habits of India’s middle-class is changing. With all these clubbed together, the future seems good.
Most of our customers prefer to buy devices that range between Rs.6,000 and Rs.10,000. But, if they find them expensive, they buy audio door phones, which is an alternate product. The CCTV camera market is excellent now, and is being driven by a plethora of commercials and promotions by a variety of companies. When similar campaigns are aired for home security devices and availability of these devices across cities becomes easy, the video door phone market will boom.
TDB: What kind of margins do video door phones import business offer?
TNK: I earn around 10-15% margin, depending on the product. But I must tell you that it used to be far better earlier. I am expecting that the market will pick up speed.
Manoj Khadkikar
BUSINESS UNIT HEAD,
CHANNEL & SOLUTIONS GROUP,
ZICOM ELECTRONIC SECURITY SYSTEMS LTD.
TDB: Home security systems is a fairly new business segment in India. What prompted you to get into this business?
Manoj Khadkikar (MK): In India, security systems were introduced in the mid 90s. I am not talking about hi-technology systems. A security system back then would mean a watchman. We felt that there was scope to bring something new that could leverage technology. But the challenge was in breaking the traditional security system. We overcame the challenge by introducing a new system called Internet of Things (IOT). We wanted to provide safety and security to individual homes and business and create a business of intelligence. And, that’s how we became the first organised player in security systems industry in India.
TDB: Video door phones are one of the most popular home security systems. What is driving growth?
MK: In my opinion, the real estate sector is driving sales of video door phones. Real estate is a sector that is growing at a fast pace in India and roughly 90% of the newly-constructed buildings have some type of video door phone. So, this product has a large customer-base.
In addition, the builders use a three-level security system. The first level is at the security at the main gate, the second screening comes within the complex or in front of the tower – for instance on the driveway or the elevator. And, the third screening is done right at your door. However, the home renovation market or after-market sales hasn’t picked up in India yet. But with customers becoming more aware of home security and its importance, the market is slowly catching up.
TDB: What is the current status of the market. How fast is it growing?
MK: Well, you know, the entire economy is down because of demonetisation. This product does not come on the top of the wish list for many people – it’s not seen as a necessity. So, the home security market hasn’t been doing well for the last couple of months. And, I have a feeling that it’ll take another few months to pick up speed. The market is expected to grow at a CAGR of 32.49% and will become a $2.4 billion market by 2020. Also, the IP-based surveillance systems, such as the video door phone, may see a bigger growth, somewhere around the CAGR of 41.78%. And in terms of regions, western India looks more promising. It’s a huge market because individual home owners are security conscious and buy the product to secure their homes and loved ones.
TDB: Other than the residential sector, what other sectors do you provide security solutions to?
MK: We work with ICICI, HSBC, Federal Bank, HDFC, Kotak Bank, State Bank and a few other banks in the country. For the record, we provide security services to more than 5,000 ATMs across India. If we just look at ATMs, the banks were spending Rs.30,000-40,000 per month for employing security guards for each ATM. The security service that we provide them costs less than half of what they were spending.
Other than the ATM security market, retail banks and financial institutions that deal with cash and other financial instruments need security systems too. Government institutions, hospitals, the hospitality industry, education institutions, transporters, shops, factories, etc. are all huge markets.
TDB: Ministry of Commerce data suggests that India imported videophones worth $2.30 billion in FY2016. How much do video door phones, which are used for home security purposes, actually contribute to this figure?
MK: Indeed, the number is large because it encompasses various items, including accessories. The figure includes IP video phones, conference video phones and much more. I think the actual multi-apartment security products contribute to about 40% of the overall bill of material. That said, the market for the product is growing in India and the potential for imports is huge.
TDB: Indian importers keep changing the sourcing country every year. What do you think is the reason?
MK: Well, there are many factors involved here, from pricing to quality. About 10 years ago, it was South Korea that dominated the world market, after which Taiwan took over. But, presently, China is the market leader. China provides consistent quality products at a cheaper rate, thus the shift. Some other countries offer better quality video door phones, but only a handful of importers are quality conscious. India is a price sensitive market and we cannot overlook China when it comes to sourcing electronic devices.
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