(Source: Mint, New Delhi)
By Sapna Agarwal, Mint, New Delhi
Oct. 12--Consumer durables and home furnishings makers will go for yet another round of price hikes after the festive season to protect their margins in the backdrop of a sharp depreciation in the local currency against the greenback.
Since August, the rupee has depreciated nearly 10% against the dollar. This means the cost of imports, too, has gone up by 10%. While importers need to spend more rupees per dollar, they have not passed on the entire burden to the consumers, although some have been raising prices in phases.
Most manufacturers are now intent on having good sales during the festive season. They are being cautious as consumers' discretionary spends have already been affected on account of high inflation, which has been ruling at over 9% for the past 15 months or so.
Going by factory output data, growth in consumer durables has slowed to 4.2% in the April-July period compared with 18.4% in the corresponding year-ago period.
"The second half of the fiscal year accounts for 75-80% of the overall sales of the '45,000 crore consumer durables industry in India. With competition increasing from private labels and brands, companies are restrained from taking price hikes as consumers are likely to downtrade," said Saloni Nangia, senior vice-president (retail), at retail consultancy Technopak Advisors Pvt. Ltd.
Since the beginning of the year, LG Electronics India Pvt. Ltd has raised prices by 7-8% across categories, including a 2-3% price increase on selective categories earlier this month. Despite the price increases, there is still "huge margins pressure", said Y.V. Verma, chief operating officer, LG Electronics India, who will review the situation again in November and December.
For LG, the festive season accounts for 18-20% of its overall revenue. The company is hoping to have a 25% growth over last year's festive season with sales of '2,500 crore.
Similarly, Nilkamal Ltd, which has a retail home decor and furnishings chain called @home with 18 stores across India, has raised prices by 7% this year. The company imports from Malaysia and China.
"We will go for another 7-10% increase in prices post Diwali," said Manish Parekh, executive director, Nilkamal.
Even mobile manufacturers such as Maxx Mobile Communications Ltd that imports from China have been hit by the depreciating rupee. The company calculated the cost of handsets at an exchange rate of '45 per dollar, but is now importing handsets at '49 per dollar. "We can't pass this on to the consumers," said Ajjay Agarwal, chairman and managing director, Maxx group. He is considering a price hike of 7-8% after the festive season is over.
Another mobile handset seller, Micromax Informatics Ltd, hiked prices by 3-5% earlier this month on top-end phones. It is running an assured gifts campaign for consumers and its head of marketing, Pratik Seal, hopes the promotion will help it garner sales of 15-20% over last year.
To beat macroeconomic concerns and negative consumer sentiments, retailers and manufacturers have planned better schemes and large promotions this year and are bullish about growth, said Pinakiranjan Mishra, a partner and head of retail and consumer products practice at Ernst and Young.
Samsung India Electronics Pvt. Ltd increased the price of refrigerators and washing machines by 1.5-3%, and air-conditioners by 10% in January, and took another round of price hikes in September on select categories. It has planned to spend '150 crore to pump up sales during the festive season.
"We are looking at business worth '2,500 crore from the promotion," said Mahesh Krishnan, vice-president, home appliances, Samsung India.
This will translate into a 30% growth over the previous year. In 2010, the company did not run a festival promotion and grew at 20-25%.
Over the year, retailers such as HomeTown, the home furnishing retail chain of Kishore Biyani-led Future Group, have replaced close to 50% of their range with their own in-house brands to bring down costs. It has cut down intermediaries, vendors and streamlined its supply chain to save cost. The cost for some of the branded products has gone up by 30-40%, but the retailer has passed on only half the burden to the consumers.
"The depreciating rupee is adding to our woes," said Mark Ladham, president, HomeTown.
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