India Inc's first-quarter earnings reveal significant challenges as the West Asia conflict fuels rising costs, prompting calibrated price increases and squeezing profit margins across key sectors like FMCG, automotive, steel, and cement.
Key Points
- The West Asia conflict has significantly driven up costs for Indian companies across FMCG, automotive, steel, and cement sectors due to higher freight, energy, and input prices.
- Many firms have implemented calibrated price increases to protect their margins, with some signalling potential further escalations if cost inflation persists.
- FMCG companies like HUL and Tata Consumer Products have raised prices cautiously to balance margin protection with consumer demand, while Dabur India is mitigating cost pressures.
- Automakers such as M&M and TVS Motor anticipate continued commodity inflation and are considering further price hikes, though auto-component makers expect limited impact due to contract clauses.
- The steel and cement industries have also faced substantial cost increases, partly offset by stronger realisations and price hikes, with the full impact on cement expected in Q2.
Rising costs, calibrated price increases, and margin pressures emerged as defining themes of India’s first-quarter earnings season, with the conflict in West Asia oscillating between fragile ceasefires and renewed hostilities over the past few months.
A United States-Iran peace agreement reached in France in mid-June briefly raised hopes of a return to normalcy, but the truce quickly unravelled.
With fresh diplomatic efforts now under way, many companies expect the current bout of cost inflation to be temporary even as a return to normalcy remains a moving target. In the meantime, companies across sectors — from fast-moving consumer goods (FMCG) to steel and automobiles — say higher costs of freight, energy and inputs triggered by the conflict weighed on profitability.
While several have responded with calibrated price increases to protect margins, many signalled that further price escalations could follow.
FMCG Sector Adjusts Pricing Strategies
For FMCG companies selling everyday essentials, pricing requires a balancing act. Hindustan Unilever (HUL) passed on only about half the roughly 10 per cent inflation it faced during April-June, raising prices by around 5 per cent to protect consumer demand.
“We’ve been calibrated in our approach so that the consumer franchise is protected,” said Chief Financial Officer Niranjan Gupta after the results.
The company told analysts that household care continued to face inflation in crude oil-linked derivatives, requiring further calibrated price increases.
Even so, Managing Director (MD) and Chief Executive Officer (CEO) Priya Nair said demand remained stable and reiterated guidance for FY27 to outperform FY26.
Tata Consumer Products told investors, after raising prices in the previous quarter it would continue to do so in a measured and benchmarked manner if input costs remained elevated.
The West Asia situation has been fairly dynamic and costs have also been dynamic, said MD and CEO Sunil D’Souza.
Dabur India too is tracking the impact of the conflict on inflation.
During the conference call with investors, Global CEO Mohit Malhotra said the company had taken steps to mitigate cost pressures and remained confident of improving margins while supporting growth in the top line.
Automotive Industry Navigates Commodity Volatility
Automakers are treading a fine line between protecting margins and preserving demand.
Mahindra & Mahindra (M&M) expects commodity inflation to continue weighing on margins in the second quarter, and possibly spill over into the third, despite cumulative price increases of more than 4 per cent across parts of its vehicle portfolio.
The company said the West Asia conflict fuelled sharp volatility in commodity prices.
While it hedges aluminium and copper, it remains exposed to steel and rubber — both of which have seen significant price increases.
“There might be some spillover of what we saw in Q1 into Q2, potentially some into Q3, but it is not something we see sustaining for long,” said Group Chief Financial Officer Amarjyoti Barua.
M&M has left the door open for further price increases, although executive director and CEO (auto and farm sector) Rajesh Jejurikar said any decision on this would depend on the trajectory of commodity prices.
Two-wheeler maker TVS Motor has said it will continue with cost optimisation in the second quarter as it navigates higher input costs and lingering supply chain disruption. MD and CEO K N Radhakrishnan said the company faced sharp increases in material costs and intermittent supply disruption, particularly in April, but conditions improved through May and June.
TVS has mitigated part of the impact through strong revenue growth and price increases in the first quarter, and remains open to doing so in the second quarter.
Auto-component makers, however, see a limited hit on margins from raw-material inflation because supply contracts typically allow changes in prices of steel and other commodities to be passed through to vehicle makers, according to a senior executive at a listed auto-component company.
Steel and Cement Sectors Absorb Higher Costs
Steel prices globally have been going up.
The stronger realisations partly cushioned the impact of higher costs arising from the conflict in West Asia.
The cost impact on Tata Steel in Q1 was Rs 1,200 crore across geographies, or about 2.5 per cent of its cost of goods sold (COGS).
In a recent interview with Business Standard after the company’s results, Tata Steel MD and CEO T V Narendran said the impact of the West Asia conflict was about Rs 800 crore in India, 10 million pounds in the United Kingdom and 20 million euros in the Netherlands, taking the total to roughly Rs 1,200 crore.
The impact in Q2 may be slightly lower, he said, adding that while there had been no operational disruption or plant shutdown, the conflict had impacted costs.
During the post-results analyst meet, JSW Steel said input costs were slightly higher than what was given as guidance after the fourth-quarter results.
This is due to the impact of the West Asia conflict.
The quarter-on-quarter increase in Ebitda (earnings before interest, tax, depreciation and amortisation) was partly offset by higher costs of coking coal and other inputs.
Jindal Stainless’ sales of finished goods in volumes declined 7.3 per cent year-on-year after disruption in the availability of liquefied petroleum gas (LPG) and propane forced the company to temporarily curtail production.
Across companies, higher costs of fuel, freight and packaging linked to the conflict emerged as a recurring theme in the first quarter.
However, with the monsoon expected to slow construction activities, the full impact is likely to become more pronounced in the second quarter.
A sector analyst said the full impact was likely to be visible in the second quarter, as companies were still carrying low-cost inventories in Q1 and diesel prices began rising only from May.
Despite the cost escalation caused by the conflict, the industry has so far been able to largely offset the impact through price hikes.
UltraTech Cement said it absorbed the sharpest imported fuel-cost shock in recent memory while keeping per-tonne earnings largely flat through cost discipline and operating leverage.
Peers including Ambuja Cements, JK Cement and Dalmia Bharat echoed concern over elevated input costs, although most expect price discipline to prevent the usual monsoon-led decline in cement prices.
Jayakumar Krishnaswamy, MD, Nuvoco Vistas Corp, in an interaction with Business Standard last month, said: “We expect costs to increase by Rs 100-120 per tonne in Q2 compared with Q1, which is typical for the industry during this period.
"If fuel or raw material costs rise further, we will respond with price increases, just as we did in April and May.
"We remain committed to protecting our margins.”
Real Estate Sector's Outlook on Construction Costs
Construction costs have risen, led by higher prices of energy-linked commodities and metals.
However, developers view the increase as short-term volatility rather than a structural shift.
Vinayak Bhosale, chief operating officer, Rustomjee group, said the company saw no need to recalibrate prices purely because of movements in input costs.
Residential pricing, he said, is driven by a broader set of factors, including land costs, location, product positioning and market demand.
Others echoed a similar view. National Real Estate Development Council chairman Niranjan Hiranandani said developers could not pass on every increase in construction costs to homebuyers, particularly when affordability remained a key consideration.
Lodha Developers MD and CEO Abhishek Lodha said if the Russia-Ukraine conflict was any guide, such volatility tended to ease over the medium term.
Oberoi Realty follows a planned pricing strategy and avoids knee-jerk price increases in response to external events, said chairman and MD Vikas Oberoi.
For now, the silver lining for India Inc lies in fresh diplomatic efforts to resolve the United States-Iran conflict.
