With commodity prices going up, a 10-15 percent price rise is set to hit the Indian appliances industry.
These price increases could come into effect beginning mid-July 2021 onwards.
Due to state lockdowns across India to avoid COVID-19 spread, sale of non-essential items, including consumer durables, has been temporarily suspended on one hand, while commodity prices continue to surge.
Appliance makers had already increased prices in February due to shortage of key components and rise in metal prices globally. Now sales have also been hit due to the lockdown-like restrictions across the country.
The disruption in the supply chain coincided with the onset of the summer season, when consumers in India start buying appliances such as refrigerators and air conditioners.
According to the India Strategy Report of Motilal Oswal Financial Service, global commodity prices have seen a surge in 2021 with the CoreCommodity CRB index rising 70 percent on a year-on-year basis in April 2021.
The report also said that sectors like consumer durables will be impacted by the price rise.
“Consumer demand has been lukewarm but raw material costs are on the rise. The industry can hold on for a month, but ultimately the prices would have to be passed on,” says Delhi-based consumer goods analyst, Varun Khosla of CKS Smart Equity.
ACs, refrigerators to cost more
Among the products, washing machines, refrigerators, water heaters and air conditioners will become more expensive, due to the twin-impact of component import cost increase and commodity price rise, he said.
As for the companies, Bajaj Electricals said that it was able to manage a better set of numbers in Q4 despite a very sharp increase in commodity prices and a weakening of overall demand sentiment.
Anant Purandare, Chief Financial Officer of Bajaj Electricals, pointed out that while commodity prices continue to stay volatile, the cost increase due to commodity price rise will be passed on to customers, depending on the demand once the restrictions are lifted.
Expensive to import
At present, importing a finished product is expensive since the government has imposed a 20 percent import duty on completely built units that are brought in from other countries.
With import being ruled out as a temporary option to mitigate the dearth of products in the market, price rise is the only choice left.
“Some temporary relief was sought from the government in the form of a cut in the Goods and Services Tax (GST). However, since that is not granted, the industry must hike prices. It is a tough year, but we have to sustain businesses,” said the senior vice president at an appliances firm.
According to business surveys conducted by the Retailers Association of India (RAI), the consumer durables and electronics category recorded yearly sales growth of 10 percent and 15 percent in the months of January 2021 and February 2021, respectively.
Production may pick up in H2
CARE Ratings said in a report that the consumer durables production is expected to grow in the range of 5-8 percent in FY22.
It added that rural demand could outgrow the demand from urban markets on the back of rising rural incomes and government initiatives taken in connection to rural electrification. Money Control