FMCG firms to hold prices despite yuan effect

Consumer durable companies dependent on Chinese imports are unlikely to pass on the benefits of the depreciating yuan to Indian consumers in terms of lower prices.

The depreciating rupee has not helped in benefiting from the falling Chinese currency making durable companies hold on to prices on the eve of the festival season.

Eric Braganza, President, Haier India, is not very hopeful. “We import 35 per cent of our products like high-end refrigerators and washing machines.

“Yet, we cannot afford to bring down prices since the rupee is also depreciating along with the yuan, while our costs are going up. In this scenario, consumer durable players cannot take a hit and will be under pressure to increase prices in fact.’’

It has already been a bad summer for categories such as air-conditioners which did not show much growth during the peak season of sales.

The major parts of air-conditioners like compressor continue to get imported from China for most of the players.

Even the drop in commodity prices for copper and aluminium used in ACs is unlikely to help in bringing down prices.

“Categories like air-conditioners import almost 50 per cent of its components, yet the yuan depreciation with the fluctuating rupee will not help in bringing down prices for the category.

“It is going to be a balancing act for durable companies since commodity prices may have been lowered but the depreciating yuan and rupee are making up for it,’’ said Kamal Nandi, Business Head & EVP, Godrej Appliances.

Sanjeev Bakshi, Country Head- AC, Videocon Industries, said: “The currency depreciation has happened in tandem. While the yuan has depreciated by two per cent, the Indian rupee has dropped by nearly six per cent.

“So prices during the festival season in all likelihood will only go up.’’

“Prices did come down to a certain extent last year but now despite prices of steel and copper lowering, the devaluation of the yuan and rupee will not allow prices to dip further,’’ observes Gulu Mirchandani , CMD, Mirc Electronics, which makes the Onida brand of televisions and air conditioners.

At best, prices will hold on due to consumer demand not exactly being buoyant right now.

As Gunjan Srivastava, Managing Director, Bosch and Siemens Household Appliances (BSH) says, “Consumer demand is not strong enough so it is doubtful prices will go up. But if the rupee continues to depreciate, manufacturers will have no option but to increase prices.’’

As Nipun Singhal, Director, Llyod Electric & Engineering observes, “There is not much installed capacity for most of the consumer durable players and raw material will continue to get imported for consumer durables in India, despite the yuan and rupee depreciating simultaneously.’’

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