Firms hit by runaway inflation, fuel hike
Companies are bracing for a major margin decline and drop in consumption in the coming quarters owing to runaway inflation.
The high inflation will impact purchasing power and the cost increases in the input raw materials will impact company margins, Krishan Balendra, Chairman John Keells Holdings told the Business Times.
Firms that don’t have an export income are worse off, analysts say. However, Joint Apparel Association Forum (JAAF) Secretary General, Yohan Lawrence told the Business Times that the bearing of inflation on the garment sector firms which are largely export oriented is instantaneous because they have to go through the currency devaluation and fuel price increases simultaneously. “The impact of currency devaluation is normally seen after about six months. But for the garment sector firms that provide transport, food etc, the effect of inflation is instantaneous because all the prices of these items have recently increased by a sizeable percentage.” He added that the devaluation coupled with hikes in fuel are having a drastic effect.
For the past seven months petrol has seen a 259 per cent increase while diesel saw 231 per cent rise. Last Tuesday, petrol prices were hiked by by 20 per cent while diesel prices went up by nearly 35 per cent.
Kasturi Chellaraja, CEO Hemas Holdings told the Business Times the current high inflation impacts firms that are largely in manufacturing, for example. “There is a significant affect for those firms. Due to the power shortages, the cost of running plants on diesel is way higher.” Ms. Chellaraja added that globally, commodity prices are on the rise, and this coupled with the fuel price hikes is damaging to bottom lines. She pointed out that Distilled Fatty Acid (DFA) prices have risen 70 per cent and are still on the rise. “These increases with the extent of the currency devaluation squeezes margins.”
Firms with dollarised income are escaping the impact but their workforce is being affected, some CEOs of such companies said.
Mahendra Jayasekera – the Managing Director of Lanka Walltiles PLC and Lanka Tiles PLC noted that with the fuel price increases, entire supply chains get disrupted.
Analysts say that some companies cost structures are affected by the price hikes in petrol and diesel, but certain firms have the ability to pass on their cost increases to consumers more easily than others.
Dr. W. A. Wijewardena, former Senior Deputy Governor of the Central Bank, said that certain companies will find their nominal income increased with the inflation highs.
“The price increases are parallel to the income they will make, and they will maintain their nominal profit margins.”
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