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The rupee inched closer to the 88-mark against the US dollar on Monday, putting companies in import-sensitive sectors on the edge. While firms fear a surge in imported inflation on account of rupee depreciation, consumer electronics companies, for instance, are taking price hikes to protect margins.
In sectors such as thermal power, where the cost of inputs, such as coal, will shoot up due to a falling rupee, tariffs may increase, say experts. While oil marketing companies have held their price lines for now to keep inflation in check, in renewable energy, where panels and modules are imported, prices have been locked into forward contracts for now, and there is no immediate impact on input costs, an executive from Tata Power said.
Executives at infrastructure and capital goods firms such as Thermax, KEC International, and L&T said they had forward covers for the next few months and were not looking to pass on input price increases to their customers as that would entail renegotiation, which could hurt their order books.
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For the automobile sector, the depreciation of the rupee against the dollar is mixed. Export-driven domestic manufacturers are likely to benefit, while companies reliant on imports, including electric vehicle (EV) makers, luxury carmakers, and passenger car manufacturers, are likely to be affected the most, said experts. Analysts say that an immediate impact on components is unlikely, as most imports are insured, with some covered by long-term contracts that shield them from currency fluctuations.
“The weakening rupee is a cause for concern for most players. This is also happening at a time when demand trends are weak. While the Union Budget has given an impetus to consumption with income tax cuts, it will be blunted to an extent with price hikes,” NS Satish, president, Haier Appliances, said.
Satish added that the firm had taken a 5% price hike in air conditioners in February. “A second round of price hikes to the tune of 4-5% is likely in March in commercial freezers and LED TVs each,” he said.
Pallavi Singh, country representative, JVC TV India, also said that a 5% hike in smart TVs was expected by next month owing to rupee depreciation. “The manner in which the rupee has fallen has taken us by surprise. We have no alternative but to take a 5% hike in smart TVs by March to insulate against this fall,” she said.
For perspective, the rupee has fallen by over 3% in the last three months. And the trend is likely to continue into the near future, experts said, as geopolitical issues, trade wars, and a global slowdown weigh on the dollar. While a decline in base metals has cushioned the impact of the falling rupee for now, this is a temporary relief, commodity experts said.
Electronics companies typically import the compressors for air conditioners and refrigerators, panels for TV sets, and motors for washing machines. Though localisation efforts in the last few years have ensured that the percentage of imported components within products has halved (30-40%) from 60-70% earlier, key parts still tend to come from abroad, sector experts said.
In electric vehicles, top executives such as Sudhir Mehta, founder and chairman of EKA Mobility & Pinnacle Industries, an electric bus maker, said that deeper localisation of components such as battery cells and power electronics was required to hedge against the risk of currency fluctuation.
“While a weaker rupee does increase costs for imported components and raw materials in the auto industry, it highlights the need for deeper localisation of critical components to build a more resilient supply chain,” Mehta said.
Kapil Garg, MD at Asian Energy, said oil marketing companies were in a good financial position and the scope for a nationwide rise in pump prices was limited for now.
“Any potential risks that can crop up would largely be from external volatility in the geopolitical realm,” he said.
(With inputs from Raghavendra Kamath and Arunima Bharadwaj)
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