Likewise, most automakers in the passenger vehicle (PV) category raised their prices in January itself, and as a result, they are likely to stock up early for another round of hikes in April.
By Shubhra Tandon & Varun Singh
Automotive and FMCG companies faced with the prospect of higher input prices following the Ukraine crisis are likely to hold on to any price increases, at least until the first quarter of FY23, for assess the evolution of the geopolitical situation. Even airlines, which are reeling from high aviation turbine fuel prices but have recently seen an increase in traffic, are not expected to raise fares anytime soon.
Industry executives said FMCG companies have already raised product tariffs lately due to rising commodity prices as far as possible without risking demand and are hedged at least for the next three months. months due to long-term contracts.
Likewise, most automakers in the passenger vehicle (PV) category raised their prices in January itself, and as a result, they are likely to stock up early for another round of hikes in April. “There is no clarity at the moment on how the Ukrainian crisis will unfold, so we will have to wait and watch,” RC Bhargava, chairman of Maruti Suzuki India, told FE.
So far in the current fiscal year, Maruti Suzuki and most other PV manufacturers have already hiked prices four times. Normally they do this twice a year.
Two-wheeler manufacturers are already reeling from low demand due to high cost of ownership due to the transition to BS-VI standards as well as high fuel prices, so they cannot afford to consider a rise in prices in the short term. to come up.
Analysts said the ongoing geopolitical crisis due to tensions between Russia and Ukraine is expected to lead to further inflation in commodity prices, which have remained high in recent quarters due to global supply chain disruptions. . However, with demand returning with the easing of Covid restrictions, companies want to tread carefully.
“In categories where demand is inelastic, we have raised prices to cover the inflationary cost, but where products are discretionary in nature such as the personal care, hair care and home care segments, we have not not passed the full cost on to consumers to support demand,” said an executive at one of the major FMCG companies. “Commodity prices have been at high levels, but in which direction would they move, we need to see in the next quarter before making a decision on price increases,” the executive added.
Inflationary pressures impacted Hindustan Unilever’s (HUL) rural demand in the third quarter, with 30% of its business coming from price-sensitive packaging. The company’s volumes halved from 4% a year ago to 2% in the quarter, primarily due to the reduction in weight the company has undertaken in low-cost packaging consumed primarily in the Rural India.
So, even before the current geopolitical scenario unfolded, the Street had forecast a scenario of high commodity inflation, expecting global supply chain disruptions to continue in the coming quarters. As a result, consumer goods companies should see lower gross margins in the coming quarters, rather than risk lower demand due to price pass-through.
Airlines, which saw an increase in traffic in December but a drop again in January due to restrictions imposed by Omicron, are looking to regain passenger load factor and are therefore unlikely to increase fares anytime soon.