Struggling to absorb rising commodity prices and logistics costs, companies across a range of sectors such as automobiles, consumer electronics, and smartphones are increasing prices, some of them for the third time this year.
In the past week, auto makers such as Maruti Suzuki and Hero MotoCorp, white goods manufacturers such Sony, LG and Godrej Appliances, and handset companies such as Xiaomi, Realme and Vivo have either announced or effected price hikes.
This follows an increase in prices of raw materials such as steel, aluminium, rubber, copper, plastics, rare metals and other input costs.
Large FMCG companies selling daily essentials said their margins could be hit if costs of commodities, packaging and logistics don’t ease but said they are cautious about further price hikes since it could hurt demand which has recovered in June, after a two-month slump amid the second Covid-19 wave.
Several of these companies have increased prices by 3-5% in the last 6 months.
Maruti Suzuki, the largest carmaker in India by market share, said “it has become imperative” to pass on some of the additional costs to customers. Other automakers like Tata Motors too have echoed similar sentiments on public fora as well as in private discussions.
“For us, price increase is the last resort. However, the unprecedented rise in input costs has necessitated that we partially pass it on to customers. Even then we try to calibrate prices so as not to disrupt demand”, said Shashank Srivastava, senior executive director (marketing and sales), Maruti Suzuki.
The basic raw material index for automakers- a weighted average cost index comprising commodities like steel, iron, aluminium, natural rubber and plastic- increased by 10-12% in FY21, as per Crisil Research.
Automakers had already implemented a 2-4% price hike in the January-March quarter this year, but this was not adequate to offset the impact of higher input costs. Subsequently, their margins narrowed between 0.7 and 1.9 percentage points during the March quarter, compared to the same quarter a year ago, Crisil data shows.
Steelmakers are mulling a price hike of around ₹2,500 a tonne during the first week of July. They have also renegotiated contracts with automakers and will be hiking prices by at least 10-15% during the first week of July. Over the last week, smartphone brands like Xiaomi, Vivo and Realme hiked the prices of some of their top-selling models by about ₹500, according to the communication sent by these brands to their offline retail partners.
A surge in demand for electronics globally and the subsequent shortage of components has resulted in the costs of components such as memory chipsets, battery packs and camera modules and sensors going up 20%, 10% and 5%, respectively. The cost of display panels for handsets had already doubled in the global market in September last year.
“A depreciating rupee and shortage of key phone parts are the two reasons which are jacking up the total bill of materials (BOM) for all handset brands,” an executive at a top cell phone brand said on condition of anonymity.
Prices of televisions, refrigerators and washing machines are set to go up by 4-6% from July, making it the third round of price increase of these products this year. Companies have already hiked prices by 10-12% since January, making it the highest price increase in a single year.
And it’s not the end of bad news yet, as industry executives say input prices will continue to remain high.
“The total input cost increase for appliances has been to the tune of 20-21% since last December. Another round of 3-5% price hike will happen immediately in July, and companies may increase it again before the festive season to bridge the gap with input cost hike,” said Godrej Appliances business head Kamal Nandi.
Nandi is also the president of the industry body Consumer Electronics and Appliances Manufacturers Association.
“We also foresee an inevitable increase of 3-6% in prices of our smart TVs from July 1 onwards,” a Xiaomi spokesperson said in an emailed statement.
FMCG executives said price increases to mitigate inflationary pressures would need to be balanced, otherwise demand would be impacted. Cost of key commodities for packaged foods like sugar and oil have shot up by 20% to 60%, and prices of edible oils and personal care products such as shampoo and packaged foods like biscuits have already increased 3-5% over the past six months.
Gujarat Cooperative Milk Marketing Federation (GCMMF), managing director RS Sodhi said there were multiple cost pressures. “We are looking to increase prices, but that will depend on the demand and supply equation.” GCMMF, India’s largest dairy product producer, has held on to prices for about 18 months now, Sodhi said.
Bisleri International CEO George Angelo said increase in fuel prices significantly impacts businesses like packaged mineral water which are logistics-intensive. “We are witnessing an escalation in prices on most other inputs as well. Sustaining price and service levels in this inflationary environment is getting to be very difficult,” he said.
Abhishek Sharma, president of Pladis, maker of premium biscuits brand McVitie’s, said: “The increase in diesel prices directly impacts our logistics costs. If diesel prices continue to show upward movement, then there will be price revision across our category.”
News source- Economic Times