Rise in commodity prices could hit midcap cos' margins

Mumbai: A further rise in commodity prices could bring margin headwind for mid-cap companies in the June quarter as raw material costs account for about 60-70% of their sales, said Jefferies. The brokerage is most bullish on Crompton Consumer, and due to their notable growth catalysts, robust market share, strong brand franchise, high B2C mix, strong balance sheet and return ratios.

Here are some of the sectors which are likely to be impacted by rise in raw material prices:
Plastic Pipes

For the plastic pipes sector, raw material is the key cost at around 65% of sales and 75-80% of total costs. Jefferies said volatility on polyvinyl chloride pipes is typically a pass through in the Indian plastic pipe industry. The brokerage’s channel checks show that price hikes of 10-15% so far this year have taken place in pipes. This immediate pass on of price hikes could lead to inventory gains for pipe makers such as Supreme Industries,

and .

Electricals and Durables
The brokerage said raw material cost is 65-70% of sales for diversified electricals. Similar to pipes, even the electricals industry generally passes volatility in copper prices via commensurate price hikes, the brokerage said. Jefferies said channel checks show 15% price hikes in cables and wires this year and inventory gains could support margins in cables and wires segment in the fourth quarter of FY21. Meanwhile, price hikes in durables and appliances have been in tranches and a strong summer has helped pass through these hikes with greater ease especially in cooling products such as air conditioners, fans and coolers.

READ  Commodity traders need to embrace a digital future

Tiles and Bathware
The brokerage said power and fuel account for 15-20% of sales, and gas prices have risen 17% so far this year. Jefferies said Morbi exports could alleviate domestic competition which bodes well for Kajaria Ceramics. The brokerage said that a key tailwind for price stability in the domestic tiles market is the strong tiles exports by Morbi players.



Please enter your comment!
Please enter your name here