With the summer season already underway, distributors are reporting high demand for most summer items, including fans, air coolers, and air conditioners.
As per the Motilal Oswal report, secondary sales (distributor-retailer channel) of refrigerators, LED lights, and pumps have grown in the range of 10–20 per cent year-on-year (YoY) during the January-March quarter.
On the other hand, demand for washing machines and dishwashers has moderated after growing strongly during April–December 2020. March quarter could see it growing in higher single digits.
Impact of Inflated Commodity Prices
In the first week of January 21, most companies raised the prices of their cooling products. However, commodity prices have continued to surge since then. Copper prices have gone up by 16 percent quarter-on-quarter (QoQ) in Q4 FY21. Aluminium prices are up by 7 percent QoQ. Steel prices have surged by 10 percent QoQ during the January-March quarter and polypropylene prices have increased by 12 percent during the same period.
As a result, there is a strong likelihood of a new price hike in the coming months in order to protect their margins. The demand was strong for cooling products in March as dealers opted for strong pre-buying of cooling products ahead of the potential price hike in April. A similar pre-buying trend was observed in December as well.
The distributors have indicated that there is a massive inventory build-up in the system as a result of dealers purchasing in large quantities first in December and now in March. It would almost certainly have an effect on sales in the coming months. The strong COVID-19 wave is also a big factor that is likely to have an effect on demand in the near future.
Steady demand despite the rising prices
Prices of cooling products have been on a rise since the beginning of 2021. Fan prices have increased by 10-12 percent, air cooler prices have increased by 5-10 percent, and refrigerator and air conditioner prices have increased by 5-10 percent.
However, that has not deterred the demand, helped by the ongoing summer season. As per the feedback from dealers, demand for fans have grown by around 15 per cent YoY. Sales of the Refrigerators have remained steady since the lifting of the first lockdown and registered 10–15 per cent YoY growth.
The dealers have also indicated that demand for air coolers have also picked up gradually from March 2021. Sales of ACs also gained strong traction with summer, however, it has moderated since the start of April 2021.
Surviving the Pandemic
After the strong pre-buying in March, the dealers are expecting the sales to moderate. Rising COVID-19 cases could further curtain the sentiments with consumers preferring to save more and opting for need-based purchases.
At the industry level, apart from the price hike, companies have worked extensively on improving their cost structure. They have refrained from cutting down on employee expenses so far but have cut down on advertising spends to protect their margins.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.