Removal of export duty on steel to have negligible impact on durable makers

“Key raw materials for white goods and durable companies are copper, aluminium and crude oil derivatives. As steel is just 2-4% of net sales, we believe there will be negligible impact on the profitability of durable companies. We model these companies to pass on the increase in costs, if any,” analysts said in a report on the consumer durables segment released Tuesday.

The government cut export duty on steel products and iron ore, effective 19 November. As per a finance ministry notification, exports of specified pig iron and steel products as well as iron ore pellets will attract ‘nil’ export duty.

Also, export duty on outward shipment of iron ore lumps and fines with less than 58% iron content will be ‘nil’.

In the case of iron ore lumps and fines with more than 58% iron, the rate of duty will be 30%.

“Higher demand for steel products from international markets might shoot domestic steel prices upwards. However, historical raw material cost analysis of durable players suggests very low (only 2-4% of net sales) exposure to steel. Thus, majority of durable players may sail smoothly, in case of any adverse movement in the prices of steel,” analysts at ICICI Securities said.

Citing examples, analysts said that steel constituted 1.6% and 2.3% of total sales and total raw material costs in FY22 for Havells, respectively.

“Other durable companies also have steel exposure of sub 5% of net sales. Steel cookers comprise 30% of total cooker portfolio (10% sales) of TTK, in our view. We believe any steep increase in domestic steel prices may take impact TTK’s profitability in the near term and may also slowdown the pace of portfolio premiumisation,” they added.