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Palm oil price fall to ease HUL, Godrej's margin pressures

Fast moving consumer goods major Hindustan Unilever and local rival Godrej Consumer Products is likely to get some respite from declining margins due to a drop in prices of palm oil, a key raw material for their soaps.

June 28, 2011 / 11:08 PM IST
 
 
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Nachiket Kelkar
Moneycontrol.com


Fast moving consumer goods major Hindustan Unilever and local rival Godrej Consumer Products is likely to get some respite from declining margins due to a drop in prices of palm oil, a key raw material for their soaps, this fiscal.


Margins of FMCG companies took a hit last year as prices of palm oil and other raw materials spiraled. Palm oil prices, for instance, touched a three-year high of Rs 58,320 a tonne in February, according to Edelweiss Securities.


However, palm oil prices have declined around 18% since February to a seven month low in June due to rising inventories, higher supplies and fall in crude oil prices. The prices are expected to fall further as the off-take will reduce from west Asian countries post the festive buying for Ramadan in August.


HUL, the largest FMCG company in India, saw a decline in margins in the fourth quarter.  Its EBITDA (earnings before interest, taxes, depreciation and amortization) margin in January-March contracted 60 bps to 13%, while gross margin declined 290 bps to 46.5%.


Godrej Consumer, which has a 10.1% market share in soaps, too was hit by high input costs, which more than doubled year-on-year to Rs 287.10 crore in the fourth quarter.

According to brokerage Motilal Oswal the company

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