The Hindu Business Line : The heat is on!

That AC may be of little comfort if you have to pay more for it! Consumer durables makers are mulling price hikes to compensate for the rise in input costs.

Many companies are working on cost-cutting measures. The R & D divisions are working with composite alloys, figuring out metal mixes cheaper than the original product.

Comfort and convenience: Dearer this year!

Bindu D. Menon

It’s a hot, hot summer. And it’s not just the mercury that is rising; the prices of consumer durables too are keeping up a scorching pace. Though summer traditionally has been the best time for consumer durable majors with as much as 35 per cent of total sales being recorded during the period, this time around the summer sales celebrations will have to wait.

Durable majors are way too busy scrutinising margins and improving efficiencies to counter rising input costs. With prices of steel and copper showing an unprecedented rise, the companies are worried about bottomlines even as they are looking to hike the prices by 3-7 per cent during the coming quarter.

While almost all companies agree they have borne the brunt of the price rise, they say some part of it will have to be passed on to the consumers.

“Input costs have shot up for refrigerators, air-conditioners and even microwave ovens by up to 30-35 per cent with the escalation in prices of copper, aluminium and steel. This is a worrisome factor for most companies. Though, we have tried maximum to absorb the costs, some price hike will have to be passed onto the consumer,” Ravinder Zutshi, Deputy Managing Director, Samsung India, said.

While steel prices have gone up by more than Rs 7,000 per tonne compared to last year, other inputs such as copper, aluminium and even plastics have shown an 11-12 per cent increase.

Says Pranay Dhabhai, Chairman, Haier Appliances India, “In 2007, the prices of compressors and copper went up drastically, and now steel prices are being hiked. Since we already operate on minuscule margins, we will have to pass on the price burden to customers.”

Many companies are still working on cost-cutting measures to retain competitiveness. The research and development wings of companies are working with composite alloys, figuring out metal mixes cheaper than the original product to reduce the impact.

Makers of washing machines, for instance, have replaced metal tubs with plastic and metal trays in refrigerators are being replaced with glass. Microwave ovens are using a lesser amount of steel by using plastic instead.

“Wherever there is a high consumption of steel, we are trying to cut down on it. Composites are being looked at as a substitute. However, it will be long before it can be used commercially and the process itself may take two-three years to be made available,” says George Menezes, Chief Operating Officer, Godrej and Boyce.

But both industry watchers and manufacturers are sceptical that the composite material can be a solution to the rising input cost. “Consumers will have to wait for the benefits of a composite alloy. Companies are working to develop certain alloys which can replace pricey metals. However, it has to be tested under various conditions and in places like the coastal regions before it can be commercially used,” said Sanjeev Wadhwa, Vice-President (Sales and Marketing), Fedders Lloyd India.

According to Consumer Electronic and Appliances Manufacturers Association (CEAMA) Secretary General Suresh Khanna, “The industry has been sluggish since the beginning of the year. Manufacturers are being burdened by input costs. Typically, purchases are made seasonally during the harvest season - April to June and festive season (October-February). However, the sales this year are showing a de-growth.”

LG Electronics India Ltd (LGEIL), which had re-worked its pricing in December last year, says the current inflationary trend is hitting the company’s margins badly.

“We have not taken a decision yet as to when we will go in for higher rates, but it will happen very soon. Air-conditioners are expected to be 4-5 per cent costlier, while other ranges like refrigerators and washing machines will be higher by 3-5 per cent,” LGEIL Sales and Marketing Director V. Ramachandran said.

Sunil Mehta, Joint President, Videocon Industries, said, “All consumer durable players – large or small – compete on the price front. Naturally, they are wary of a price increase. Market share is critical. There should not be a dip in the market shares, that is our only worry.”

A cross-section of industry watchers and analysts BrandLine spoke to said that all durables majors will have to take a hit of 2-5 per cent in profits if the current metal prices hold, but would like to hold product prices. “Margins are wafer-thin and a 2-5 per cent hit in profits is not sustainable in the long run.”

So, how are the companies planning to go it this summer? It is becoming a volume game, through offers, new launches and technological innovations. And if they have to have a slice of the Rs 35,000-crore durables market, then it is time to innovate.

The dozen-odd models of refrigerators, air-conditioners and washing machines being launched by each camp are being positioned differently so that they can command a higher price.

Durables giants are beating the heat by innovating in terms of design, colour, star-ratings and enhanced efficiencies. With air-conditioners and refrigerators becoming the most coveted items to combat the harsh weather, companies are betting big on design and delivery besides increasing their marketing budgets. Companies are also playing with colour and design. “Our range of refrigerators are available in colours such as fresh vibrant blue, silver, green, yellow and even pink to go with the home or office décor,” said Warren Wang, Managing Director, TCL.

This apart, most companies are using the health plank and energy efficiency ratings to promote their product lines.

“The slowdown in the US economy will certainly hit Chinese exports, which will eventually lead to a reduction in consumption of metal prices. This may soften prices in the coming months. However, it is still too early to debate,” said an analyst.

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The heat is on!