Date:07/12/2004 URL: http://www.thehindubusinessline.com/2004/12/07/stories/2004120701820200.htm

Back Matsushita Air-Conditioning to cut production in India

N. Ramakrishnan
R. Balaji

Chennai , Dec. 6

FACED with a steady erosion in market share, thanks to stiff competition from its Korean rivals, Matsushita Air-Conditioning India Pvt Ltd is all set to drastically curtail its manufacturing operations in India and use Malaysia as a base to source kits for assembling air-conditioners here.

According to Matsushita's Chief Operating Officer, Mr Masahiro Tatekawa, the company is changing its strategy to increase the business. While not elaborating on the strategy, he said that air conditioner kits would be imported from Malaysia and assembled here.

This will give them the advantage of technology, he said, which will help to expand its market. Initially, Matsushita will import about 10,000 kits a year and with the growth in market will double or triple imports.

The company is downsizing the manufacturing facility here. During 2004-05 the company is not likely to report a profit, he said.

The company has a plant at Irungattukottai, about 55 km from Chennai on the national highway to Bangalore, with an installed capacity of one-lakh units. The plant was set up with an initial investment of Rs 60 crore with the Japanese parent, Matsushita Electronic Industrial Company, holding 70 per cent and the Videocon group the balance 30 per cent. The company is now a fully-owned subsidiary of the Japanese company.

According to reliable sources, Matsushita Air-Conditioning, which makes the National brand of window and split air-conditioners of 1 tonne and 1.5 tonne capacities, has found it difficult to meet the competition posed by Korean companies such as LG and Samsung. While a 1.5-tonne National window air-conditioner costs Rs 22,000 in the market, the one made by LG is available for Rs 16,000. Likewise, a 1.5-tonne National split air-conditioner costs Rs 44,000 while an LG unit is available for Rs 32,000-35,000.

For the year ended March 31, Matsushita Air-Conditioning recorded a turnover of Rs 30 crore and a profit of Rs 30 lakh. However, this year the turnover is expected to drop to Rs 22 crore with the company likely to incur a loss, according to the sources.

According to reliable sources, the company is examining various options. These include curtailing production at the plant here and importing kits from Malaysia and assembling them at Irungattukottai. The sources say that in December and January the plant is expected to produce only 100 or so units a month. The plan is to import about 20,000 kits next year for assembling from Thailand.

Simultaneously, the company is going in for a reduction in workforce by as much as 40 per cent. The number of workers will be brought down to about 30 in the next couple of months.

It may be recalled that the Japanese parent hiked its stake from 70 per cent to 100 per cent, first through a rights issue in March 2002 involving a foreign direct investment of Rs 72.5 crore after which its stake went up to 90 per cent. It got the Centre's approval in April 2002 to hike its stake to 100 per cent involving an FDI of Rs 10.5 crore.