The fast-moving consumer goods (FMCG) companies are expected to hike their products' prices of daily use goods to compensate the rising inflationary pressure on their key raw material as demand saw an uptick during the festive season. This spells bad news for buyers as they may have to fork out more money to buy these products.
Dabur, Parle, and Patanjali are closely tracking the development while Marico and others have hiked their product prices.
The rise in crude oil price could increase the cost of derivatives such as linear alkyl benzene (LAB) and high-density polyethylene (HDPE). LAB is an ingredient in detergents, while HDPE is used in packaging materials for essential items such as soaps, detergents, hair oils, creams, shampoos, and toothpaste.
FMCG players are feeling the pressure to protect their gross margins as they are unlikely to absorb the surging commodity prices of key raw materials like coconut oil, edible oil, and palm oil for long.
"A lot depends on what is your portfolio of products and where is the inflation coming from. If price hikes are done in a calibrated manner, the impact will not be severe. Consumers will be able to stomach the price hike," Harsh Mariwala, chairman, Marico told Business Standard recently.
"We have seen a significant rise in input cost and especially edible oil in the last three to four months and that is putting pressures on our margins and costs. As of now, we have not taken any price hike but we are closely monitoring it and if it goes like this then probably, we may go for a price hike," Parle Products Senior Category Head Mayank Shah told PTI.
According to him, these commodities are cyclical in nature. When asked about the price hike, Shah said: "It will be across products as edible oil is being used in all products. It would be at least 4 to 5 percent."
Dabur India CFO Lalit Malik said over the recent months, inflation has been inching up for some key raw materials like amla and gold. "Going forward too, we expect some inflationary pressure in key commodities. Our efforts will be to absorb the raw material price increase through our synergies and cost efficiencies, and undertake only selective and judicious price hikes, which will also depend on the competitive scenario in the market, said Malik.
While for Haridwar-based Patanjali Ayurveda, it is still a 'wait and watch' situation and yet to take a final call on this but hinted that it is also moving in that direction. "We always try to absorb the market oscillation but if compelled by the market factors, we would take a final decision on that," said Patanjali spokesperson S K Tijarawala.
Marico, which owns brands such as Saffola and Parachute, has faced inflationary pressures and had to go for an effective price hike. "The quarter (October-December) was also characterised by inflationary pressure in key raw materials necessitating cutting back on some promotions and taking effective price increases across both Parachute and Saffola edible oil portfolios, said Marico in its quarterly updates for Q3 last week.
Edelweiss Financial Services Executive Vice President Abneesh Roy said many key raw materials such as palm oil, tea, copra, edible oils, among others have risen sharply. "Price growth will come back in 2021 for the consumer companies after raw material pressure starts impacting their gross margins," he said.
However, Roy added that the consumer companies have other cost levers to cushion this impact at the EBITDA margin level. "FMCG companies have very high pricing power. They normally take a price hike in a gradual staggered manner but eventually pass on the entire price hike. We expect the same to continue, given the demand is robust and most of the FMCG products have the advantage of low unit packs of Rs one, two, five, and ten price points, Roy said.
EY Partner and National Leader (Consumer Products and Retail) Pinakiranjan Mishra said: "While FMCG companies have seen a rise in cost especially of Agri inputs, they will try and limit price increases through cost control measures to support consumer offtake in the current environment."(With inputs from PTI)