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As India enters the key festive shopping season, home appliance makers are raising prices to offset higher raw-material costs, even as demand remains subdued and manufacturers continue to absorb part of the inflationary pressure, according to a quarterly sector preview by Kotak Institutional Equities.
The timing is significant as festive demand is expected to support sales across white goods, while a fresh round of price increases effective from October 1 could also pull some purchases forward. Kotak said higher input costs are supporting revenue growth through pricing in some categories but are also putting pressure on margins where companies have not fully passed the increase on to consumers. Growth in white goods could be aided by some pre-buying ahead of price hikes (effective from October 1), whereas ECD growth could be impacted by a shift in the festive season, Kotak said in its Consumer Durables & Apparel 2QFY27 preview. Kotak said the next round of price increases of about 5-7 per cent, effective from October 1 and announced by major brands, could support primary sales as buyers and dealers advanced purchases before the higher prices took effect. Price hikes (10-12%, led by BEE table change/RM inflation) and pre-buying ahead of the next round of hikes (5-7% effective from October 1, announced by all major brands) could drive healthy primary sales growth in 2Q, the report said. The timing is significant as appliance makers head into the key festive selling period. However, Kotak cautioned that stronger reported sales should not be read as a broad-based recovery in demand. Demand trends have remained subdued in the ECD space, partly impacted by high inflation. Primary sales could be impacted by a shift in the festive season, it said. Room air-conditioner sales volumes in the September quarter could rise 15-20 per cent from a year earlier, though Kotak said the growth would also be helped by a weak base. At the same time, manufacturers are not passing the entire increase in input costs to consumers, putting pressure on profitability. Kotak said margins in white goods and electrical consumer durables are likely to remain under pressure because of the partial pass-through of inflation during a seasonally softer quarter. The impact varies across categories. In home appliances, price increases are supporting revenue, but higher raw-material costs continue to weigh on margins. The report expects growth in products such as washing machines and refrigerators to be partly supported by pricing and a favourable comparison base. The picture is different in wires and cables, where a sharp rise in commodity prices is itself lifting the value of sales even as physical volume growth remains relatively modest. Copper and aluminium prices in rupee terms rose 56 per cent and 40 per cent year-on-year, respectively, during the quarter, according to Kotak. Volume growth [is expected] to remain subdued for major wires and cable companies, the report said, showing that higher reported revenue in the segment is being driven significantly by pricing rather than a similar increase in volumes. Kotak said the coming quarters will therefore depend on how quickly raw-material inflation moderates and whether underlying consumer demand strengthens after the festive period. (ANI)
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