The last of the five-part series looks at why durables companies are planning to raise prices by up to 15%
As commodity prices continue to escalate due to the Russia-Ukraine war, manufacturers of consumer durables are being forced to increase prices yet again.
This is not the only problem the industry is grappling with. The rise in Covid-19 infections in China and Hong Kong has also affected the supply of components such as open cell and mainboard, which are typically imported from China. Hence, there could be a shortage of these components from next month, which would impact manufacturers of televisions.
While consumer goods companies have planned price hikes to offset the rise in input costs, many have the cushion of inventory to tide over the next two months. Lessons learnt over two years of the pandemic, which affected sales during the peak summer season, have helped companies better prepare themselves this summer.
In FY22, consumer durables companies took several rounds of price hikes in an effort to keep up with the rising prices of raw materials. This month some companies have already increased prices in the range of 3-5 per cent, Eric Braganza, president, the Consumer Electronics and Appliances Manufacturers Association (CEAMA) told Business Standard.
He said that having lost out on two summers due to the pandemic-induced lockdowns, this year companies are all ready to meet the demand expected for summer goods such as air conditioners, coolers and refrigerators.
“There is no problem in the short-term. But there could be an impact on production after two months,” Braganza added.
Usha International, which has hiked the prices of its products by 15-18 per cent this year (FY22), is planning to initiate another round of price increases in the range of 10-15 per cent. This is almost as high as the price hike taken during all of FY22.
The company has not decided if it will need to take subsequent price hikes through the year. “It’s difficult to say. We want to be watchful and also be cognisant of the fact that it is becoming an expensive proposition from the customer’s point of view. But we cannot rule it out,” said Rohit Mathur, president, electric fans, water heaters and pumps, Usha International.
In case commodity prices keep increasing as sharply as they have in the recent past, it could lead to subsequent price increases, he added.
However, companies are also aware that increasing prices would likely impact demand. “We are expecting a good summer after a couple of years. Nevertheless, there is always the risk of demand going down a bit due to price increases. Product categories certainly see a risk when it comes to such a sharp increase in prices, especially entry-level product categories,” Mathur said.
However, he pointed out that industry did not have any other option to mitigate the impact of high commodity costs. “We’ve taken so many measures in the last one-and-a-half, two years. Industry and the organisations don’t really have much scope but to pass on the price increase,” he said.
Super Plastronics, the brand licensee of Kodak, Thomson, Blaupunkt and Westinghouse, will also increase the prices of its consumer appliances by about 5 per cent and will wait for another 40 days before it decides to takes another round of price increase in televisions.
Avneet Singh Marwah, CEO of Super Plastronics, said that raw material suppliers are now renegotiating contracts every 15 days due to the volatility in their prices. Suppliers would earlier renegotiate prices once a month or, sometimes, every three months.
In FY22 itself, the prices of televisions were increased by around 4-5 times, and cumulatively, they have gone up by 20-25 per cent.
“There will be a huge shortage (of televisions) in the market in the next 60-80 days due to the high number of Covid cases in China, because of which shipments are delayed,” Marwah said. And even after China opens up, there will be a rush and a mismatch between supply and demand, leading to a tightness in the freight market, he added.
Indian manufacturers typically import open cells and mainboards from China, which account for 60 per cent of the components that go into manufacturing TVs.
There could also be a shortage of television panels in the next 60 days, Marwah said. However, he added that Super Plastronics has built a buffer of its raw material requirements for the next 120 days and, hence, its production will not be hit.