PC: Reuters
Planning to buy a new air-conditioner or a washing machine or major kitchen appliances? You'd best do it in a hurry because the appliances industry is predicting a price hike of 2-5% from June onwards. According to The Economic Times, the net increase will be in the range of Rs 400 to over Rs 1,500 for premium models, and will kick off as new products hit the market. And you can blame the increase in crude oil prices, the depreciating rupee and hardening rates of key raw materials - steel and copper - for this.
"The industry had held back the price rise for the past two months due to existing component stock which was sourced at lower prices," Godrej Appliances business head Kamal Nandi told the daily, adding, "Prices will increase in phases from June to cushion customer sentiments." The rather subdued demand coupled with the twin whammy of input cost pressure and sliding rupee has left little scope for any further absorption by the companies in this business segment.
The rupee today is trading at 67.77 against the greenback but earlier this month it had repeatedly flirted with the 68-mark. In fact, the Indian currency had depreciated by as much as 8% in this calendar year before the suspected currency market intervention by the Reserve Bank of India recently stemmed further fall. But, according to the report, the industry's pricing strategy had benchmarked the rupee at Rs 66 against the dollar and, hence, is currently feeling squeezed.
At the same time, steel prices have gone up by 7-8% and the same is true for prices of copper condensers, which are imported largely from China. The industry has been able to absorb the input cost spike till now on account of a price drop in some chemicals like foaming agent. But it is no longer feasible to continue doing so.
India's largest air-conditioner maker Voltas has already increased prices by around 3% recently - although it tried to cushion the impact by running promotional offers - and Godrej is now planning to follow suit when "fresh supplies hit the market". Whirlpool India, too, will be increasing prices once the industry does, MD Sunil D'Souza told the daily that it is yet to decide by how much while Panasonic India seems willing to take a more wait-and-watch approach. "Any further depreciation of the rupee or increase in input cost will force the price increase," Panasonic India MD Manish Sharma reportedly said. Korean consumer durable majors LG and Samsung have likewise hinted at a price hike of up to 5% to traders.
What will be the impact of such a price hike on consumer demand? Retailer opinion stands divided. On one hand, the growth of consumer durable suggested that there should be little impact. In January, Karthik Srinivasan, senior vice-president and group head at rating agency Icra had pointed out that "financed consumer durables purchase is poised to grow at a healthy pace of 21-24% per annum to reach Rs 1.9-2.1 trillion [lakh crore] in financial year 2021". In fact, Mumbai-based Vijay Sales managing partner Nilesh Gupta told the daily that over 70% of sales are now on EMI, which makes sales largely price inelastic.
But on the other hand, the already lacklustre summer sales of air-conditioners and refrigerators are a cause for concern. It's not been a particularly hot summer thanks to the unseasonal intermittent rains and hence retailers are reportedly sitting on huge unsold inventory. Against this backdrop, a price hike could further curtail demand.
(With PTI inputs)