West Asia conflict raises raw material costs; cable and wire makers increase prices: Crisil Ratings

New Delhi [India], 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.