Analysts believe the near-term pressure is more on revenues than margins since cost pass-throughs may protect profitability. Dispatches are slowing mainly because of channel destocking – dealers who loaded up between December and February are now waiting for prices to cool before placing new orders. This could weigh on reported sales for a couple of months.
Sterlite Technologies has been an outlier, gaining 11% in March so far since the company manufactures optical fibre cables (OFC) and, therefore, has lesser exposure to copper and aluminium.
For other companies, copper and aluminium make up nearly two-thirds of production costs, leaving the sector highly sensitive to metal inflation. While price increases are typically passed on, the adjustments come with a lag. A sudden spike, therefore, may result in higher working capital needs.
War Shock Stocks fall 6–17% in March with investors reacting to near-term pressures; Analysts feel cost pass-throughs may still protect profitability
Adding to the pressure, supply disruptions in LPG and natural gas have constrained production for some companies. “While January and February had normal dispatch trends, momentum weakened in early March, a critical month that typically contributes about half of quarterly volumes,” said Manish Valecha, research analyst, Anand Rathi Institutional Equities. He expects muted to mid-single-digit volume expansion depending on how demand shapes up through the rest of the month.
According to Aakash Fadia, lead analyst – consumer durables, YES Securities, customers may defer purchases briefly in anticipation of price corrections though it may be short lived as purchase delays beyond 15-20 days risk pushing their project timelines, thereby affecting profitability. He added that the export segment faces a bigger drag due to high shipping costs and vessel shortages. “The consumer durables sector will feel a sharper pinch, as intense competition restricts its ability to pass on the copper-price surge, putting margins at risk. In contrast, wires and cables should see only a milder impact because pass-throughs are smoother and margins are structurally higher,” said Fadia. While he is yet to revise estimates, he cautions that industry projections may be trimmed once conditions normalise or even towards the end of the month. For now, the weakness appears operational rather than structural.
