Firms weigh on price hikes as high input costs tighten

While consumer durables and packaged goods companies expect to pass costs on to customers through calibrated price increases of between 5% and 10% over the coming months, not all companies can not exercise such pricing power.

“We will wait until the end of the fourth quarter to see how demand develops. We have increased prices over the past year. We also expect metal prices to decline,” said a senior executive from a manufacturer. on condition of anonymity, as the company is in the so-called silence period before announcing its quarterly results.

Global commodity prices rose sharply for most of the second half of 2020 and the first half of 2021 as the strong post-covid recovery in China fueled demand for metals and fuels.

Indian prices for hot rolled coil (HRC) or flat steel doubled from June 2020 to October 2021 due to an increase in Asian prices. World aluminum prices also doubled during this period.

However, after a year-long rally, global steel and aluminum prices fell on concerns over Chinese demand.

“Indian HRC steel price doubled from June 2020 to October 2021 but has declined by 12% since then to 64,000. Coking coal, on the other hand, nearly doubled in the second half of 2021, driving up costs. We believe Indian steel margins peaked in the first half of FY2022 and will fall sharply by FY23, although they are above historical levels,” Jefferies India said in a statement. a note from January 10 that assumes the price of steel for FY23 is 58,000 and coking coal price of $230 per ton. Aluminum was up 60% in the 10 months to October, but has fallen 7% since then to $2,913.

India’s corporate sector is facing margin pressure for the first time in 12 quarters as companies cannot fully pass on rising input costs to consumers, ratings agency Crisil said.

Corporate profitability, as defined by earnings before interest, tax, depreciation, and amortization (EBITDA) margin, likely fell 100 to 120 basis points (bps) from a year earlier and 70 to 100 bps sequentially over the quarter ended December, Crisil’s analysis of 300 companies (excluding those in the financial services and oil and gas sectors) showed up.

“Companies have not been able to fully pass on soaring input costs, especially key metals and energy prices. Flat steel prices were up 48% year-on-year in the third quarter, while aluminum was up 41%. The price of Brent crude jumped nearly 79%, while those of spot gas and coking coal climbed nearly 5.4 times and 2.4 times, respectively, year on year,” Hetal said. Gandhi, director of Crisil Research.

For the first nine months of this fiscal year, Ebitda margin widened 80-100 basis points from a year ago to 22-24%, helped by last year’s low base . Ebitda earnings growth is expected to moderate to 10-12% from 47% in the first half of this fiscal year, Crisil said.

Company turnover is expected to increase by 16 to 17% for 9.1 trillion is the first nine months of the fiscal year, driven by soaring commodity prices, Crisil said.

“While revenue growth is in line with expectations, the underlying reasons have changed over the past three quarters. While volume growth continued to underperform, price increases compensated to some extent,” added Crisil.

In the consumer segment, major consumer packaged goods companies have made price increases of 6-8% in the first half of this fiscal year, and prices have likely remained high even in the current quarter.

“With the industry facing unprecedented inflation (10-year high), this has weighed on Hindustan Unilever Ltd’s volume growth. In some packs, the company has resorted to grammage reductions to indirectly take price increases. This will lead to optically low volume growth despite the same number of packs sold,” Edelweiss Research said in a January 12 report.

Overall, such an inflationary environment across the board puts pressure on consumers’ wallets and as a result, volume growth is affected in the commodity industry, especially in rural areas, a- he added.

To subscribe to Mint Bulletins

* Enter a valid email address

* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our app now!!

Richard L. Militello