West Asia conflict raises raw material costs; cable and wire makers increase prices: Crisil Ratings
New Delhi, June 2
Tightening global supplies amid the West Asia conflict have pushed up prices of key raw materials used in cables and wires, increasing costs for a sector that supplies critical infrastructure projects across power, renewable energy, real estate and data centres, according to a report by Crisil Ratings.
The report said prices of copper and aluminium -- two major inputs for cable and wire manufacturers have risen 22-27 per cent, while the price of polyvinyl chloride (PVC), another key raw material, has increased by around 12 per cent over the last fiscal.
"At the same time, rise in realizations will also partly compensate for elevated prices of key raw materials due to their tightening global supply amid the West Asia conflict," the report noted.
The increase in raw material costs is expected to lead to sharper price hikes by cable and wire manufacturers this fiscal as companies seek to pass on the impact to customers. The sector's revenue is projected to grow 28-30 per cent this fiscal, supported by both higher prices and continued demand from infrastructure-linked sectors.
According to the report, demand for cables and wires will continue to be driven by investments in renewables, power, real estate, data centres and smart meters.
"Volumes will continue to grow on the back of demand for housing wires and power cables (~50% of total revenue) with investments upto Rs 10-12 lakh crore lined up in renewables, power, real-estate and new age sectors like data centres and smart meters," said Mohit Makhija, Senior Director, Crisil Ratings.
However, he added that volume growth could moderate this fiscal as higher prices may affect spending decisions.
"Volume growth is expected to be a tad lower this fiscal at ~10% as higher prices (18-20% rise in realizations) may lead to some deferment of discretionary capex spends by industrial sector," Makhija said.
Despite rising input costs, the report said cable and wire manufacturers have historically demonstrated the ability to pass on increases in raw material prices. It noted that cables and wires generally account for less than 5 per cent of total project costs, allowing companies some pricing flexibility.
The report also said operating profits are expected to expand by 12-13 per cent this fiscal, while healthy cash flows and low dependence on external debt are likely to keep credit profiles stable.
It added that increasing competition and any slowdown in investments across end-user sectors remain key factors to watch.
— ANI
Reader Comments
As someone working in the renewable energy sector, this hits close to home. Our solar parks rely heavily on cables! 😓 The 22-27% copper price increase is no joke. However, the silver lining is demand from smart meters and data centres is booming. Just hope our project budgets factor in these cost escalations. India's infra push shouldn't be derailed by global conflicts.
I've been saying this for months - West Asia instability is a global supply chain nightmare for commodity exports. But I'm cautiously optimistic. Crisil's track record is decent, and they mention operating profits will still grow 12-13%. The real worry is smaller manufacturers who might struggle to pass on costs. Big players like Polycab and Havells probably have better hedging mechanisms.
Ugh, just as I was planning to renovate my flat! 😩 Copper cables everywhere - from electrical wiring to data cables. PVC price up 12% too. Yaar, itna sab mahanga ho raha hai. But kya karein, global factors are beyond our control. Hope the government considers some tariff relief on these raw materials for domestic manufacturers. Or at least fast-track PLI schemes for critical inputs.
Good analysis from Crisil, but I'm skeptical about the 'pricing flexibility' argument. In a competitive market like India, not all manufacturers have equal power to pass on costs. Smaller players in the sector might get squeezed. Also, the 10% volume growth estimate seems optimistic given higher prices will likely delay some housing projects. Let's see how this plays out in Q2 results.
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