Chennai: The increase in raw material costs is set to trigger a second round of price hikes in the auto industry with manufacturers indicating a markup of 1-3%. Mahindra & Mahindra, and Ashok Leyland may hike prices in April-May to neutralise the pinch of the sharp rise in costs of steel, aluminium and other metals.
“We will probably increase prices again in April. So far, we have used a better mix of products in India and globally, but raw material costs have gone up faster than our ability to hike prices,” said Siddhartha Lal, MD, Eicher Motors. The increase will happen in both commercial vehicles as well as Royal Enfield motorcycles.
This price markup comes at a time when the truck market is just about hitting the growth track after nearly two years of low demand.“We have already taken a hike last October and another in January. But there has been significant increases in steel prices and specialised metals. If this continues, we will have no option but to increase prices. With India slated to be one of the highest growth markets, we are hopeful that the price increases will be absorbed by the market,” said Gopal Mahadevan, CFO & director, Ashok Leyland.
For truck makers, this rise in costs hurts more since the BS4 to BS6 shift had already involved a sharp price hike in a negative demand market. “In Q3, our raw material costs as a percentage has gone up. There was an increase from BS4 to BS6 and we started hiking prices only from Q3, when the market began to look up,” said Mahadevan. The truck industry slumped 54% in the April-December period.
“Raw material costs have been going up sharply and we will take a price increase in the first quarter of FY22,” said Rajesh Jejurikar, ED (auto & farm), Mahindra Group. “Currently, the supply disruption over the semiconductors continues but it should normalise in June-July,” he added, referring to a mark-up across the Mahindra range, including SUVs and commercial vehicles.
Steel mills had sought yet another price hike of Rs 7,250 per tonne in January, but that demand has been softened, said Vikas Bajaj, president, Association of Indian Forging Industry. “Discussions are on between OEMs and steel mills and price increase will be agreed on, but the problem is supplies,” said Bajaj. “If I order 100 tonne, I am only getting 20-30.” The price hike has also impacted the forging steel manufacturers because steel typically constitutes 60-65% of the ex-factory value of forgings. “Domestic steel manufacturers have increased prices twice in Q3 for forging quality steel and three times in the October-December period for other types of steel,” added Bajaj.