Inflation may dampen summer sales of consumer durables
PremiumUsha International has taken price increases of between 15% and 20% on different products in the last 15 months on account of escalation in raw material prices
NEW DELHI : Consumer durable and appliance companies have warned that a jump in crude oil prices could push up costs of everything from freight to packaging, forcing firms to hike prices again.
Usha International, which makes fans, water heaters, pumps, sewing machines and kitchen appliances, has effected price increases of 15-20% in the past 15 months on account of escalation in raw material prices. “Going forward, since the situation in Europe is very volatile, there is a big challenge in terms of cost increases coming again," said Rohit Mathur, president of electric fans, water heaters and pumps at Usha.
He foresees another round of a 10-12% price hike at Usha, owing to direct commodity price inflation and the indirect impact of rising fuel costs. “We are seeing overall, rounded cost increases that will impact everybody’s lives," Mathur said.
“The issue is in terms of crude oil prices, now crossing $130 a barrel…The impact on the Indian economy will be felt once fuel prices here go up. This will bring in inflationary trends to the transportation sector," he added.
Prices of key raw materials such as aluminium, steel, copper and high-density polyethylene are up 44.2%, 25.4%, 14.6% and 8.3%, respectively, in the fourth quarter of FY22 from a year ago, analysts at ICICI Securities said in a note on Wednesday.
The Ukraine crisis, they pointed out, has resulted in steep inflation in crude oil prices and other commodities. “We expect sustained increase in crude oil prices and other commodities to result in lower profitability for durable companies," they said.
These analysts also said that since most electronics companies have hiked prices by an estimated 15%, there is little headroom to pass on any further hikes to consumers without impacting demand. “Further, rise in consumer inflation and increase in interest rates will also reduce wallet share for white goods and durables," they said.
Usha’s Mathur agreed. He said companies will not be able to absorb costs and will have to pass it on to consumers which may impact demand. “If this (price increase) goes through, then definitely there is going to be an impact because it will eat away a lot from the consumer’s wallet," he said. Consumers tend to become conservative and discretionary spends are impacted, he added.
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Others said they are waiting and watching and remain wary of immediate price hikes as that could directly affect demand.
“We have no plans to increase the price because we just increased it from 1 February. Before that there was a price increase somewhere in December also," said Kanwaljeet Jawa, Daikin India’s MD and CEO. Daikin makes industrial and consumer air conditioners.
“For this season, we are seeing that the market is likely to grow because last two years it has been down about 12-15% CAGR and we are looking at at least 20% growth year-on-year. So, we don’t want to touch the prices at this point of time," he said.
“But we don’t know, situation will evolve... as of now we are looking at a good summer."
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