Godrej Locks Keeps Faith In Sagging Rural Market To Retain Dominance

Sales of India's largest lockmaker have not picked up in rural and semi-urban areas in yet another indicator that the nation's hinterland has yet to climb out of the twin setbacks of the pandemic and high inflation. Still, the company will continue to expand deeper into smaller towns and villages.

For Godrej Locks & Architectural Fittings and Systems, a unit of Godrej & Boyce Mfg., the contribution from what it calls "rurban"—a combination of rural and semi-urban areas—market reduced to 22–23% in the financial year 2023 from 26% in fiscal 2019, according to its top executive.

Shrinking rural sales in the Rs 6,000-crore lock market is a troubling signal for the real estate market and the health of the economy even as India's headline numbers continue to suggest a recovery. And it lends credence to the view of a slowdown in the housing market beyond the metros.

"Physical infrastructure continues to be a challenge in the semi-urban areas," Prashant Thakur, regional director and head of research at Anarock Group, said. Developers, he said, are "cautious" about launching projects in these areas.

Shyam Motwani, business head at Godrej Locks, said after India lifted pandemic curbs in July 2021, "we saw a rapid rebound in urban centres, but the rurban markets haven't seen a similar comeback". "Even till the end of the first quarter of fiscal 2024, we have seen this part of the country grow at a very slow pace, not to our liking."

Motwani attributes the sluggishness in rural sales to pandemic-led job losses, inflation and lower disposable incomes.

Godrej Locks & Architectural Fittings and Systems holds a share of 50% in the organised market. The bulk of the company's sales come from new buyers, while the rest is replacement. Drawing a parallel with consumer goods, he said the demand for locks in sub-metros will grow when there is a clear indication of a rural or semi-urban demand revival for consumer goods.

The slowdown in the rural market came for the Godrej Group company when it was penetrating deeper into the tier-II cities and beyond over the last four to five years. Godrej Locks currently caters to 330 cities outside of the metros.

"We were seeing these markets contributing to revenues in a big way, but its share in our total sales still trails pre-Covid size," Motwani told BQ Prime.

However, Motwani is hopeful of a rural recovery in the second half of the year. "The sluggish phase appears to be behind us with inflation gradually cooling from earlier highs, a good harvest leading to better farm incomes, improving consumer sentiment and continued government spending on rural infrastructure."

The company, which closed FY23 with a revenue of around Rs 1,200 crore, is targeting a 15–20% year-on-year growth this fiscal.

It aims to grow twice as large in four years to Rs 2,500 crore, driven by digital locks, higher marketing spends and also expanding retail distribution network. "The industry is projected to grow 7–8% in FY24 and we want to ensure that we grow two times faster than that."

The business unit of Godrej & Boyce plans to expand its network of retailers, distributors and dealers by 10% from 25,000 this year.

Godrej Locks will prioritise volume growth over margin as the company does not want to lose market share.

"We have seen a super cycle in commodities over the last couple of years," Motwani said. "Even though we are seeing a bit of cooling now, it remains in the speculative zone with price volatility expected to continue before normalising in the second half of the fiscal."

The company intends to plough savings from easing commodity costs into marketing and promotions, expanding manufacturing capacities, technology as well as towards introducing new products, according to Motwani. The cumulative investment planned for this fiscal is about Rs 50 crore, he said.

The company derives 60% of its revenue from the locks segment, including digital, and the rest from architectural fitting and systems.

In the mechanical and traditional locks, Godrej Locks is a market leader with a one-third share. Its share in digital locks is 14%. Digital locks contribute to 2–3% or around Rs 200 crore of the total Rs 6,000-crore locks market in India, according to Motwani. "For us, digital locks account for 5% of sales, but it has the potential to double in the next couple of years."

The locks category doesn't lend itself for online purchases, he said. "But the digital locks category has the potential to change it." He expects the share of online sales to grow to 10% in three years from the current 2–3%.

Urban consumers don't just prefer smart locks but new finishes as well, Motwani said.

Rose gold is not just trendy for tech gadgets, homeware and make-up but also locks. According to him, demand for rose gold, pure gold, matte black and graphite grey has been growing in a big departure from traditional finishes like stainless steel.

The predominance of steel and antique brass is being challenged with new finishes, said Motwani, adding that the share of the new finishes currently stands at 30–40% of sales. Even in digital locks, he said, there is a growing demand for "champagne rose" unlike the traditional "all-black" finish.