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india news: Rising input costs put India Inc in a bind

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Mumbai|New Delhi|Kolkata: Weeks after the festive bump in demand and with re-emergence of optimism a few months ahead, India Inc is worried it may have to choose between absorbing higher input costs or hiking final prices and bearing a dent in sales.

Cost of key inputs in consumer products, autos and real estate are moving north. Margin pressure is being felt across companies but, sensitive to budget-watching consumers as well as competitive pressures, many are opting for partial cost transfers and cost control in other functions.

Inputs that are more expensive vary from steel, cement and agri-products to freight charges, apart from scarcity-related price hikes in consumer durable components. Prices of television sets, refrigerators, washing machines, air-conditioners and microwave ovens are set to rise 8-20% over the next two to three weeks due to a 15-40% increase in input costs — one of the biggest single-shot hikes.

Automobiles are next in line, with manufacturers still deciding on the price hike quantum – a tough call since auto makers suffered a low even before the pandemic hit. Market leaders Maruti Suzuki and Hero MotoCorp said they will increase vehicle prices in the new year.

Large Price Hikes may Hurt Sales

“Over the past year, cost of vehicles has been impacted adversely due to increase in various input costs. Hence, it has become imperative to pass on some impact to customers through a price increase in January 2021,” said a Maruti statement.

Some input costs in other businesses have risen very sharply. Prices of television panels are up 30-100% due to global shortage. Freight costs have jumped to $3,000-4,000 per container, from $700-1,000 a month ago.

Kamal Nandi, president of the Consumer Electronics and Appliances Manufacturers Association, which represents companies such as LG, Samsung, Haier, Godrej, Lloyd and Sony, said such large price hikes may hurt sales.

That’s probably the reason some consumer goods companies are planning to absorb costs, hoping that their lower prices will give them an advantage. “We have undertaken selective price increases…one can always protect margins through aggressive cost management in other areas,” said Saugata Gupta, managing director, Marico.

Some agri-products — a key input in many consumer businesses — have seen a big in price. Tea price rose 50%, copra by 11% and palm and edible oils witnessed an uptick of 35-40%.

Parle Products category head Mayank Shah said slowing demand and competitive pressures mean price hike options are limited despite increase in agri input costs.

A few companies are temporarily insulated because of long term contracts drawn up earlier. Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India, said input costs for autos and major construction such as highways will typically go up after current contracts end.

It’s different in real estate, however, where long term contracts are rare, and where demand has just picked up, thanks to low interest rates and lower stamp duties. Despite steel and cement becoming costlier, a price hike for homes is a tough call as realtors can’t afford to lose customers. At most, discounts on listed prices will get smaller.

“Some developers are currently running operations for just cashflow and survival, not for margins. Because of rising material costs, we will not be able to offer further discounts and existing discounts will also start diminishing,” said Jaxay Shah, national chairman, Confederation of Real Estate Developers’ Associations of India (CREDAI). Realtors are alleging cartel pricing in cement and steel, asking for government intervention.

(Writankar Mukherjee, Rajesh Mascarenhas, Kailash Babar, Sagar Malviya, Ketan Thakkar, Bhavya Dilipkumar and Sharmistha Mukherjee reported for this story)

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