India Inc goes for price hikes again as input cost pressures increase

Durables, paints, and consumer staples among worst affected by raw material prices

Companies across categories such as durables, paint, and consumer staples are raising product prices by 2-5 per cent as input cost pressures increase.
 
While palm oil, used to make soaps, has come off its peak and metal prices are showing signs of cooling off in the past month, crude oil continues to remain volatile.
 
Metals such as aluminium and copper are used to make durables.
 
Crude-linked derivatives, such as titanium dioxide and linear alkyl benzene, go into paints and detergents, respectively.
 
High-density polyethylene, also a crude oil-linked derivative, is used as packaging material for all essential items, including soaps, detergents, hair oils, creams, shampoos, and toothpastes.
 
In the past one month, the benchmark Brent crude price has risen 7 per cent. A longer window of three to six months shows a sharper spike — up nearly 17 per cent in three months and close to 41 per cent in six months.
 
Metals such as aluminium, lead, nickel, and tin are up between 7 per cent and 13 per cent in three months and between 5 per cent and 55 per cent in six months. Copper, on the other hand, has been flat over the past three months; but even this, if taken over six months, is up 14 per cent.
 
For companies, this volatility is not a good omen for pricing.

 
For instance, Asian Paints, the leader in decorative paints, will hike product prices by 2 per cent in July, according to trade sources. This will be the second increase in two months. The last price increase was in May of nearly 3 per cent.
 
Durables companies plan to increase prices by 3-5 per cent from July of refrigerators, washing machines, and television sets.
 
“Input cost pressures have been on for a while. Though price hikes were taken earlier this calendar year in tranches to the extent of 10-12 per cent, they weren’t enough. There is a gap of about 7-8 per cent which has to be passed on to consumers. This will happen in phases from July,” says Kamal Nandi, business head and executive vice-president, Godrej Appliances.
 
Some chief executive officers (CEOs) say that resisting price hikes could be detrimental to the health of the business.
 
“Commodity inflation has been quite severe. In contrast, the price hikes being considered are minor. We have absorbed as much as we can. Some amount will have to be passed on,” says Manish Sharma, president and CEO, Panasonic India and South Asia.
 
Experts say these price hikes, coinciding with the lifting of lockdowns, could dampen consumer sentiment.
 
Companies, on the other hand, say they remain cautious about the pricing action.
 
In a report dated June 17, Motilal Oswal analysts Krishnan Sambamoorthy, Dhairya Dhruv, and Kaiwan Jal Olia said while there had been some softening in palm oil prices in the past two weeks, April and May had witnessed overall raw material inflation for companies.
 
In the case of fast-moving consumer goods companies, crude oil and tea prices have risen sequentially over the past few months, said the analysts.
 
Hindustan Unilever, the country’s largest consumer goods company, had taken further price increases in soaps, detergents, home products, and tea in the June quarter of 2021-22 (FY22). This followed price hikes taken in the March and December quarters of 2020-21 (FY21) to combat inflation.
 
Asian Paints Managing Director and CEO Amit Syngle admits that challenges on the crude oil price front remain, despite pricing action by the company.
 
“There has been an overall inflationary trend since December 2020 in raw material prices. As a leader, we are looking at a balanced approach and have been able to pass on some increases in the market, effective May 1. And now, effective July 2021,” he says.
 
More decorative paint companies are expected to follow the leader, said sector analysts.
 
“Paint companies have been avoiding price hikes till the March quarter of FY21. That is no longer possible, resulting in price increases across segments in the June quarter of FY22,” said analysts Manoj Menon, Aniruddha Joshi, Aniket Sethi, and Karan Bhuwania in an ICICI Securities report of June 17.
 
Most experts say while the pricing action will help shore up margins for companies, volume growth could suffer in the process.
 
They add that large companies will gain from the trend of formalisation of the economy which is likely to gain steam with rising commodity inflation, while small and unorganised players may not survive in this market.