Fuel Price Hike
05. jun.2008. We want to
inform you kindly that Government should not increase the prices
of petrol, diesel and LPG for following points:
The fuel price hike has painted a grim picture for India Inc. While the increase in freight costs is unlikely to increase cost of production by more than 3% to 5%, it will put further pressure on profitability of companies which are already being impacted by rising raw material costs and slowdown in offtake. Increasing consumer prices is an option but there are aprehensions that this could translate into falling sales.
For auto companies, price hike comes as a frontal attack. Demand for fuel guzzling luxury sedans is expected to slump though sales of small fuel efficient may pick up. The industry is already reeling under high inputs costs of steel, nickel and plastics. Maruti Suzuki’s executive officer (sales and marketing) Mayank Pareek said: “Historically, we have seen there is a shock effect as fuel prices go up, but in the long-term it is inflation which strains demand and affect topline growth.”
As of now, it’s only the cement makers who are certain about increasing prices. Steel makers are holding on to their prices despite their costs going up by 2-3%. Grasim Industries’ CFO and director D D Rathi said that the cost will go up, but didn’t quantify the increase. The 10% hike in the price of diesel is likely to increase the cost of cement by Rs 1.30 per 50 kg bag. Freight cost contributes 21% to a cement company’s total cost and road accounts for almost 60% of the total freight while rail accounts for the rest. Steel companies have said that increased cost would not be passed on to the customers as they have promised the government to hold the prices at the current level for at least three months.
The pharma industry also
finds itself pushed to a corner. “The price hike will now have a direct
impact in the freight and distribution cost, which accounts for 8% of the
total manufacturing cost,” said Cipla MD Amra Lulla. Industry body Indian
Drug Manufacturer’s Association (IDMA) secretary general Daara Patel said
the pharma industry would be among the worst hit. “Drug manufactures use
only roads to transport for medicines for transport.”
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