FMCG cos rule out price cut post fall in raw material costs

FMCG firms are set to gain from decline in palm oil and other commodity prices, but most of them ruled out cutting prices of their products.

According to a report by IIFL Institutional Equities, personal-care companies -- including Emami, Godrej Consumer and Marico -- are likely to benefit the most, while HUL, despite gaining temporarily, is unlikely to sustain it due to
competitive intensity.

As per data from the Solvent Extractors Association of India, import prices of palmolein -- a key ingridient in many FMCG products -- have gone down to Rs 54,400 per tonne as on on June 24 from Rs 57,500 per tonne on May 11, 2011.

The companies, however, said there is no scope on of passing the benefit to the customers as they have to offset hits taken when the commodity prices were high.

"Price cuts are not at all likely as we had not taken up prices in line with the highest raw material prices," Godrej Consumer Products Chairman  Adi Godrej said told PTI. Similarly Dabur, which sells personal care products and
hair oils, said it will not reduce the price of its products as the usage of palm oil in their products are limited.

"Though there has been change in the commodity prices, it has not gone down in a comfortable level. Palm oil prices have decreased but it needs to be seen if it brings about change in the vegetable oil prices," Dabur India Head Procurement Sumit Mukherjee said.

Yet, Kolkata-based Emami has already decreased the prices of its edible oil brand 'Healthy and Tasty' by up to 10%.

"We have made some corrections of our edible oil prices. Going forward, we would look at making more price changes. Howver, this will also depend on the market scenario as well," Emami Director Aditya Agarwal said.

According to IIFL Institutional Equities report, the beneficiaries of the commodity price change would be home and personal-care companies, including Emami, Godrej Consumer and Marico.

"If there is a sustained reduction, the key beneficiaries would be home and personal-care companies that have high pricing power and would not need to undertake price cuts," the report said.

Emami, Marico, Colgate and Godrej Consumer, with relatively higher pricing power, would be able to sustain their margin gains if commodity prices remain low, it added.

The report, however, said HUL would gain only in the near term but benefit was unlikely to sustain due to competitive intensity.

"In the soap and detergent category competition would intensify from aggressive such as P&G and ITC and unorganised players that typically halt operations in a scenario of higher commodity prices," the report said.