Rupee slide may inflate consumer electronics prices post festivals

The continued weakness in the rupee against the US dollar is set to trigger another round of price increases by consumer electronics makers after the festive season sales conclude.

The rupee has fallen almost 9% against the dollar so far this fiscal to reach a new all-time low of ₹82.32 on Friday.

Analysts said while the ongoing festival sales are seeing attractive deals on electronic items, prices could rise significantly post the sales.

“The rupee slide will certainly have an impact on prices,” said Navkendar Singh, associate vice president, devices research at IDC India, South Asia, and ANZ. He said  vendors can’t afford any impact on already-subdued demand during the festive period, but will have to undertake price corrections eventually. A fresh round of across-the-board price increases can be expected in November, said Singh.

“We’re expecting a 5-7% increase in (smartphone) prices once the festive season ends, say in November or December, on account of the exchange rate increase. All the new models, including those on 5G, will see a price hike,” said Prachir Singh, senior research analyst at Counterpoint Research.

Sanyam Chaurasia, technology market analyst at research firm Canalys, too, said vendors cannot further bear the pressure of a weak rupee and will have to pass it on to consumers. Foreign currency has been an issue for companies for the last 18-20 months, and “if this continues, we can expect another spike in (the price of) devices in the coming months,” said Chaurasia.

Smartphone manufacturers in India are exposed to currency fluctuations as they still assemble phones from semi-knocked down (SKD) kits instead of doing full manufacturing. Companies, therefore, import parts such as displays and integrated circuits in a partially disassembled state for making the final product. A weak rupee inflates the cost of such parts and also that of the finished product.

“There is almost a 97-98% SKD for most of the smartphone vendors. If you import, you have to pay additional forex. The strengthening of the dollar and rupee depreciation will further impact the vendors,” he said.

Consumer electronics makers are  a worried lot. “The rupee depreciation is the biggest challenge at the moment, leading to reduced margins and an increase in working capital,” said Arjun Bajaj, chief executive of Daiwa, a homegrown TV brand. Bajaj, who is also the director of TV maker Videotex International, said talks have already begun in the industry about suppliers raising raw material prices. He added that price revisions will be decided next month.

Similarly, Prashanth Mani, managing director of Motorola Mobility India said gains from lower component prices, especially of semiconductor chips, have been offset by a weak rupee.

“The (input) costs are coming down but the exchange rate is going up, so it kind of nullifies itself. Let’s say, you’re getting a 5-10% reduction, but the exchange rate has gone up by 12% over the last six months, so that’s the challenge,” he said.

Mani said that companies are holding onto prices for current stocks but will be forced to pass on the higher costs to consumers for fresh inventory.

Most brands are expected to be able to defer any price increases till the festive season gets over as components for such phones have been purchased several months earlier. Essentially, since phone deliveries for the festive season reach the market by June-August, they were bought at lower prices.

“The increase in prices will depend on how much inventory they have and for how much time. Most wearables have buffer stock for months,” an executive from a wearable company said on condition of anonymity. The executive added that most of the procurement has already been made for September and October. “We may see increased prices of wearables in the first quarter of 2023.”

IDC’s Singh, however, pointed out that since demand tends to stay lean post Diwali, this may not affect the overall demand for consumer electronics post the festive season.