Duty hikes hit consumer durable makers the most

Firms expected to pass on higher cost but it will come with a lag, impacting margins in the near term

While the custom duty hike on 19 goods will affect multiple sectors, the impact on consumer durables is expected to be the most as it comes at a time of weak demand.

Consumer durable makers are hoping for an uptick in sales ahead of the festive season as the fiscal year has been subdued due to unseasonal rains. Sales of air conditioners have especially been impacted in a seasonally strong June quarter. The duty hike will add to the import bill worsened by a depreciating rupee.

Sanjeev Hota at Sharekhan says an import duty hike on consumer durables like ACs, washing machines and refrigerators does not augur well for domestic players, especially

AC manufacturers, given the compressor cost will go up and price hikes will take some time to kick in since players have already effected hikes to combat the rupee depreciation.

It was not surprising, that firms such as Havells, which depend on imports for 70 per cent of Lloyd air-conditioners requirements, shed 5.2 per

cent on Thursday.

Voltas, too, is impacted as it recently launched white goods range (refrigerators, washing machines) in collaboration with Arcelik, a global major in consumer appliances. Analysts at CLSA say the JV will be impacted given that all units are imported.

Share prices of Voltas corrected 6.28 per cent. Of the two, Havells will have lower impact as its domestic facility is expected to be commissioned by next fiscal, while for Voltas, its facility will take longer to be commissioned.

Blue Star also has some exposure to imports, says Arafat Saiyed at Reliance Securities. Saiyed, however, feels manufacturers such as IFB and BPL, having limited exposure to imports, will be

beneficiaries. Blue Star lost more than 5.26 per cent on the bourses, while BPL and IFB Industries gained 0.4-4.0 per cent on Thursday.

Kunal Sheth at Prabhudas Lilladher highlights that Crompton Consumer Electrical remains well placed with none of its product categories impacted. The same is the case with Hitachi, which sources a significant part of its products from the domestic market. Goldman Sachs expects industry players to pass on the higher costs to consumers, but this will come with a lag, impacting margins.

Apart from consumer durables, duty on aviation turbine fuel has also been hiked by 5 per cent. Analysts at J M Financial say that though this could be a short-term negative

sentimentally, they are expecting to hear some relief package for airlines, as indicated by news reports. The import duty on radial car tyres is positive for players such as Apollo Tyres and Ceat, as imported radials cater to the premium segment. No duty hike on gold imports is positive for Titan.

Analysts at Nomura say the Centre has not targeted gold imports given the past experience of increased smuggling.

The Centre has chosen consumer goods over capital ones, banking on the robust and resilient consumption growth over the past year. However, given this is a small share of overall imports, these measures will help reduce imports by only $500 million (0.1 per cent of total imports), which is quite small.