New Delhi,(Aryavarth) With a strong uptick in commodity prices, there exists a possibility of price hikes in consumer durables towards the end of March or beginning of April, as per Motilal Oswal Institutional Equities.
“Our channel checks suggest that underlying retail sales are yet to pick up meaningfully (or match primary sales), but the confidence level is good among dealers, especially for Cooling products. The possibility of a price hike in April could lead to strong primary sales for brands by the end of March, a similar phenomenon which happened towards the end of December 2020,” the report said.
“This could lead to an upward revision in our 4QFY21E revenue estimates across our coverage universe. Do note that the supply chain network of the unorganized sector is yet to fully return to normal. Any pre-buying is likely to benefit the organized (or listed space) disproportionately,” the report said.
Many companies have the ability to undertake price hikes. Most companies undertook prices hikes (4-8 per cent) across various products during the first week of January. There is a likelihood of another round of price hikes in April, the report added.
Electrical Goods like fans and lighting are able to pass on input cost pressures. These categories consist of small ticket size items and have higher replacement demand. At times, there may be a delay in price hikes by a month or so, but overall they tend to tide over commodity price inflation risks. The risks to margins are relatively high in the White Goods category owing to higher competitive intensity.
Prior to COVID-19, brands resisted price increases, despite import duty hikes as well as depreciation in the rupee v/s the dollar. This is rightly reflected in the decline in margins from peak levels for various companies in the past. Also, White Goods have an element of discretion, which allows for postponement of purchases, although not as discretionary as say high ticket size items like 4 wheelers, the report said.
It added that strong pre-buying towards the end of 3QFY21 led to inventory levels inching to 50 days in January. While secondary sales were uniform across Consumer Electricals categories like Fans and other appliances during January-February 2021, it was subdued for the Consumer Durables category (barring Refrigerators). However, sales for Air Conditioners have started to pick up in the initial few days of March. Inventory levels have moderated to 40-45 days now and is not a major concern, it said.