By ET Bureau | 12 Jun, 2013, 04.00AM IST0 comments |Economic Times|
NEW DELHI: The weakening of rupee is set to pinch the consumer. Prices of PCs, laptops, tablets, cars, TVs, premium food, luxury items and a slew of other consumer products are likely to go up, despite subdued demand, as a rapidly depreciating rupee takes its toll on high import-content industries. In certain high margin categories like smartphones, companies might absorb the impact of depreciation as they strive to increase market share, but this luxury is not available to all.
Car sales have dropped for seven consecutive months in the country but manufacturers say they have no option but to hike prices if the rupee continues to slide. The rupee has weakened by 7.5% against the US dollar since last month.
“A sustained depreciation of 10% in the rupee will lead to a 60 basis points increase in headline inflation. But it will be a lagged impact over 2-3 months,” said Shubhada Rao, chief economist, YES Bank. While Rao said weak demand would force companies to absorb higher costs and take a hit on their bottom lines, most firms that ET spoke to said they were considering price hikes. Desktops, laptops and tablets could get dearer by 5-12% by the month end. The industry works on an inventory period of just two-three weeks and new stocks will be brought at higher prices.
“In less than a month, the rupee has depreciated more than 8%. If it’s a gradual depreciation we can plan out better. This has been sudden and we will increase prices by June end by 5-8%,” said Amar Babu, managing director, Lenovo India. S Rajendran, chief marketing officer, Acer India said the combination of depreciation and higher costs would result in prices increasing by around 10% by the month-end. Adds Rothin Bhattacharya, head of strategy, HCL Infosystems, “For the hardware industry, its been a tough two years during which the rupee has depreciated almost 30% (from Rs 43 to Rs 58 now). This time around prices will increase by at least 8%.”
Television and white goods makers such as LG, Samsung and Panasonic said the price hike could be in the range of 2-5% but said they would monitor the situation for next 10-14 days before deciding on the quantum. “There is a rolling inventory of around 30 days in the market and hence we have sometime to decide on the price hike.
If the rupee does not gain, prices would definitely go up from next month,” said Panasonic India managing director Manish Sharma. LG India managing director Soon Kwon said if the rupee situation remains the same or worsen further, it will definitely have an impact on pricing. The consumer electronics companies are monitoring currency movements and prices for categories such as LED and Plasma television as well as premium home appliances such as side-by-side refrigerators, front-loading washing machines and inverter AC. These products are either fully imported or are assembled in India with imported components. The slump in sales over the last several months has resulted in car makers resorting to discounts and price cuts but the weakening rupee is likely to reverse this trend, even as companies admit that margins will be under pressure.
“We will be left with no other option, but to increase prices if this slide continues. We are going to review our car prices at the end of this month. In normal market conditions, you can take decision on price rise much faster. But when the market is not doing well, it is not only about how the rupee is moving.. we also have to see how the competition is reacting,” said Sandeep Singh, DMD and COO, Toyota Kirloskar. Similar sentiments were echoed by other car makers. “Car companies are left with no choice but to increase prices as they are not able to absorb the impact. The affect on demand depends on the quantum of price increase on the product .
We do not expect any immediate impact on demand by the small price hike on Amaze and CR-V which came into effect from June 1,” said Jnaneswar Sen of Honda Siel Cars India Ltd. A Hyundai Motor India executive said margins of car companies will be under pressure in the medium term. “Any increase of input costs may lead to a further drop in already stagnating demand. Compounded with the depressed market conditions, margins also will be under squeeze in the medium term,” said R Sethuraman, director (finanace & corporate affairs) at Hyundai.
But its not just big ticket items like cars, TVs and laptops that could get expensive. Retail chains Future Group and Spencer’s said imported chocolates and spreads such as Ferrero Rocher, Nuttela, Orion Choco Pie, Snickers, Skippy peanut butter and American Garden will also see a jump in prices, once the current stock finishes in a few weeks time. Spencer’s Retail chief executive Mohit Kampani said for every 1% the rupee devalues, the end-price on imported food goes up by 3-4%. For imported liquor, the impact is 6% and 2-3% for imported homeware such as crockery, plastic products and home convenience products. “The net impact on consumer prices could be as high as 20-25% for imported products,” Kampani said. Sales of imported products, which were growing upwards of 20%, may sober down, he said. Foreign travel, too, has become more expensive.
“The rupee’s free fall has pushed up the cost of tour packages by 5% to 8% over the last month’s rates. Travel to regions like the UK, the US or Europe would cost around 8% more, affecting the overall budget of a traveller,” says Sunil Hasija, executive director, TUI India. Given the increase in cost of tour packages, travellers are shortening their holidays by a day or two or are rethinking their hotel options. Many tourists are opting for short haul destinations such as Thailand, Malaysia, Singapore, Hong Kong over long haul ones to offset the increase in cost.
Some travel companies insulate their customers from fluctuations in package costs due to currency pressures as they book at forward market rates to offset any actual fluctuation at the time of holiday.
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