From Voltas To Bajaj Electricals: High Demand Hopes Overshadow Input Cost Worries
Companies expect strong summers and robust demand to boost sales of cooling products.
Durable product manufacturers and market participants expect rising input costs are likely to impact consumer durable companies in the current fiscal, especially if the uncertainties around the Red Sea persist.
However, companies still hold hopes for growth amid expectations of a strong summer and robust demand to boost sales of cooling products. Also, the spike in input costs is expected to be "manageable", leaving less room for fear to creep in.
Worries around supply chain constraints on affected trade routes due to the ongoing Houthi-led conflict at the Red Sea, coupled with uncertainties around inflation, have raised speculation that input costs may rise further in fiscal 2025.
"There is a negative bearing on input costs because of the Red Sea crisis. The products are not moving properly. Crude prices are also up," said Mahesh Gupta, chairman and managing director of Kent RO Systems Ltd.
"And this will remain a challenge for us. The demand might also hamper if the input costs surge," he said. "If the prices go up, then obviously margin will be impacted." Even Voltas Ltd. hinted at rising input costs in fiscal 2024 on similar grounds.
However, the price will not rise very sharply, maybe 3-4%, which will be manageable, Gupta said. Although there are headwinds on the global front, the domestic demand seems quite robust and that can compensate for any rise in raw materials, he said.
Along similar lines, Godrej Appliances Ltd.'s Business Head and Executive Vice President Kamal Nandi agreed that the company has observed an upward trend in the prices of most commodities, such as polystyrene, chemicals, copper, and aluminum, among others. "Considering this, our input costs have grown by approximately 2% (in FY24)," said Nandi.
However, the company stays optimistic about growth in the premium segment as consumer interest has shifted substantially to premium products on the back of improvement in disposable income and growing interest in luxury spends.
"We aim to boost our premium segment contribution from 45% to 55% and grow overall by 25–30% on the back of robust summer product portfolio," Nandi said.
Bajaj Electricals Ltd. made the view unanimous by suggesting that a not-very-significant impact will be seen on rising input costs due to geopolitical concerns. "And anyways, costs will go up with both increasing demand and competition", said Bajaj Electricals' Chairman and Managing Director Shekhar Bajaj.
And intense heatwaves will boost the growth cycle as demand for cooling products, both in the premium and mass segment, will surge. If the premium segment sees some impact due to rising costs, then the mass segment will grow, but growth will be there, said Bajaj.
Experts also hint at mild concerns over the rising costs of raw materials used in making consumer durables and appliances. However, such an uptick can be easily absorbed through price hikes, said Ajay Thakur, research analyst at Anand Rathi Share and Stock Brokers Ltd.
"Only if the crisis intensifies or even sustains for long and if the crude oil hit the $100-mark, the gross margin of consumer companies might take a serious hit," he said. "There is a bit of turbulence in terms of margin, but we don't see too much of a concern as of now," said Thakur.
