A weak rupee spells more trouble for consumer durables companies

The first of a four-part series looks at its impact on consumer durables

As the rupee continues to slide against the dollar, it has added to the woes of consumer durables companies, which are left with no choice but to hike prices yet again. The industry is, in fact, battling a trifecta of problems — high commodity costs, Covid-induced lockdowns in China, and a depreciating rupee that will further push up the cost of imported components.
 

What’s more, interest rates are headed higher, increasing the cost of working capital for companies and raising the EMIs (equated monthly instalments) of customers who buy consumer goods by taking loans. 

As a result, consumer durables companies may have to increase the prices of white goods to the tune of 2-6 per cent in 

June, and will likely have to take subsequent price hikes in the following quarters as well to meet the rising costs. The 

industry has already taken around five to six price hikes since 2021.

“There is nothing we can do about the rupee depreciating against the dollar except increasing (product) prices,” Eric Braganza, president of  the Consumer Electronics and Appliances Manufacturers Association (CEAMA), told Business Standard.

However, Braganza also said the government’s production-linked incentive (PLI) scheme had helped companies set up 

factories, which could reduce India’s dependence on imports in the next two to three years.

The other pain point has been the Covid-induced lockdowns in China which has led to supply chain constraints. Braganza 

said that due to a shortage of components and the high demand for air conditioners in the summer months, some of these 

products, especially the five-star rated ACs, were out of stock in the market.

But perhaps the most significant recent impact on costs has been the decline of the rupee against the dollar. The rupee 

hit an intra-day low of Rs 77.73 against the dollar on Tuesday (May 17). Given the high component of imports in consumer 

goods, a weakening rupee is bound to push up costs even more. And a weak rupee, along with rising crude oil prices, will 

add to the freight costs, which have also been going up in recent months.

“As the rupee depreciates, manufacturers have no option but to increase prices. In the case of air conditioners, 60 per cent of the components are imported, while 20 per cent of the components of refrigerators are imported,” said Kamal Nandi, 

executive vice-president and president at Godrej Appliances. 

The proportion of imported components is even higher in products like high-end televisions, mobiles devices, computers, 

and so on. Godrej Appliances, too, expects that the weak rupee will force the sector to take another price hike in June.
 

Nandi added that while a depreciating rupee means that imported components will cost more, the problem has arisen at a 

time when there is a shortage of components in the market due to shipments not coming in from China. 

“Due to inflation, there are already signs that demand is softening. The current demand for cooling products is because of 

the ongoing heatwave. Once the monsoon arrives, there will be a drastic drop in demand,” Nandi warned.

Atul Lall, managing director and vice-chairman, Dixon Technologies, said, “In our electronics manufacturing services (EMS) 

business, the volatility in commodity costs and currency is directly passed on to the customer.” About 80 per cent of the 

company’s business comes from EMS. 
 

The fall of the rupee has also had an impact on the cost of televisions. 

“Due to the rupee depreciation, we will have to raise prices,” said Avneet Singh Marwah, chief executive officer, Super Plastronics, the brand licensee of Kodak, Thomson, Blaupunkt and Westinghouse in India. 

Marwah explained that the market has had to deal with three stress factors back-to-back — supply disruptions due to the 

Ukraine-Russia crisis, supply-chain issues because of the lockdowns in Shanghai, and an appreciating dollar. 

“Volumes will take a hit since we are left with no choice but to increase prices in the next 45-50 days. The increase will be to the tune of 4-6 per cent,” Marwah said.   

This will be the seventh price hike that the company will take across its appliances and televisions since the beginning 

of 2021.

Despite price hikes, consumer durables companies continue to see margin pressures. In its report on interim earnings of 

the March 2022 quarter, analysts at Motilal Oswal Securities (MOSL) said consumer durables are among the sectors that have 

been adversely affected by rising raw material prices. Some cushion has, however, come from low-cost inventories. Of the 

three companies that MOSL analysed, the report shows that Ebitda margins, which stood at 12.4 per cent in the March 2021 

quarter, have fallen to 9.9 per cent in the March 2022 quarter.

Nandi of Godrej Appliances said companies have taken price hikes to the extent of 15-16 per cent since 2021 while 

commodity costs have increased by 30 per cent since December 2020. “There is still a gap of another 15 per cent which 

needs to be bridged. The industry will have to take price increases of about 3 per cent every quarter to pass on the rise 

in commodity costs,” he said. 

Feeling the squeeze

•    Since 2021, consumer durables firms have taken price hikes in the range of 15-16% to offset rising costs

•    As the rupee slides, companies are expected to hike prices by 2-6% in June 

•    Higher crude oil prices are pushing up freight costs

•    Higher interest rates have made working capital expensive for companies while also raising customer EMIs