News

White goods may pinch consumer pocket, another price hike in offing

Abhishek Law Kolkata | Updated on October 21, 2021

Most products, barring ACs, have taken a third round of price hike in August

White-good makers in India may look at another round of price hike post the festive season as power shortages in China — the world’s manufacturing hub — starts hurting supplies of key parts and sub-assembly units. Chip shortages already had an impact on production. The quantum of hike is likely to vary depending on the commodity situation.

Most companies have hedged or stocked-up for about 90 days, at max a quarter, which will see them through till middle of November. The strain is likely to come into play from end-November or in early December if the power crises continues. Coinciding with this would be the probable price hike, as hedging is now a costly option.

Most products, barring ACs, have taken a third round of price hike in August, in the range of 3-5 per cent, taking the year-to-date price hike to 15-20 per cent to offset input cost rise. Against this, the average commodity price increase is 20-25 per cent. Some retailers claim that the manufacturers have already indicated that they will mange to fulfil festive demand. However, as the marriage season starts there is going to be a likely short supply and price hike.

Cautious outlook

Dolat Capital, in its channel checks report, said the dealer outlook on the festival season remains cautious with neutral to positive sentiment.

In India, about 80-85 per cent of the parts used to manufacture televisions are sourced from China, while for AC the sourcing is about 65-70 per cent and about 40-45 per cent for washing machine, say industry players. Chinese vendors are operating at scaled-down capacities – some for limited days or at less than 50 per cent capacity, and many have reportedly apprised their Indian buyers of a possible halt, albeit temporarily, in production. This coupled with the semi-conductor shortage is expected to have a ripple effect here.

While companies are trying to find alternative vendors in Thailand and Vietnam, it is proving to be a time consuming process. Moreover, despite all the push on setting-up fabrication units (to counter chip shortages), it will take at least two years for the situation to stabilise, said people aware of the developments.

“Till date, consumer durables have not seen supply shortages. But if the power situation in China does not improve, commodities and raw material will get costlier,” Kamal Nandi, Business Head and Executive V-P at Godrej Appliances told BusinessLine.

Had the second wave of Covid infections not led to localised lockdowns, companies would have raised prices further. “The industry as a whole was not very sure of pent-up demand playing up and recoveries post the second wave of Covid. Hence, price hikes were moderated and kept to two rounds this fiscal – one in July and another pre-Navratri. But, as margins come under pressure, a hike looks imminent,” said an executive at a white-goods making firm.

Though raw material prices stabilised during the quarter (July to September) to some extent, they still are at higher levels year-on-year. Hence, the industry’s gross margins are to be marginally impacted, said Axis Securities in its Q2 earnings preview.

So far, in the Navratri-Dussehra festive season peak, companies claim there has been a 10-20 per cent volume growth and a 25 per cent (odd) value growth. Opinion is divided as to whether the demand is price hike-driven or because of improved product mix, particularly an upgrade for premium offerings.

Premium air conditioners – five star-rated ones, IoT enabled ones and those with health options – and washing machines are driving up numbers across urban India and towns with a population of upto 300,000. Easy financing options, EMIs, ‘Buy Now Pay Later’ and reducing price gaps in online and offline channels have seen faster upgrades take place, say retailers and industry trackers.

According to Gaurav Shah, Business Head, Air Conditioners Group, Panasonic India, channel sales have been good with pent-up demand driving numbers over last year. “No immediate price hikes are expected in ACs. The power crises in China is concerning. We are keeping a watch,” he added.

Published on October 20, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like