Monday, September 20, 2021

FMCG cos increase prices in Sep quarter to offset costs

Large fast-moving consumer goods (FMCG) companies said they have raised prices in the September quarter as higher input costs continue to remain a cause of concern.

The companies, which include those selling packaged foods and soaps such as Britannia Industries, RSH Global, and Godrej Consumer Products, said they will also have to put in place tighter cost control measures.

In a post earnings call earlier this month Britannia’s Managing Director Varun Berry said the company saw crude oil prices go up. “Palm oil prices also were very different from what we have seen in the last year. We have seen a sudden spike in oil fat prices during this quarter,” he said. Britannia has raised prices, Berry told analysts on 2 August.

Firms are battling multi-year high inflation. Global palm oil prices continue to remain volatile after touching record highs this year. The oil is used in soaps, industrial baking, and cosmetics.

Kolkata-based RSH Global, which makes the Joy brand of personal care products, said the cost of goods used by the company has increased by 20-25% in the last six months. “This is certainly alarming for the industry as a whole. Every passing week, we find there is some percentage increase in the cost of the goods,” said Sunil Agarwal, Co-founder and Chairman of RSH Global.

The company raised prices in May and then in July. “It is an overall price increase of 8-10%,” said Agarwal. This was done on large price packs. The company will refrain from further raising prices and will, instead, reduce marketing spends as it tries to preserve margins, Agarwal said.

Overall global inflation across commodities is at a decade high, said Sunil Kataria, Chief Executive Officer, India and SAARC, at the Mumbai-based Godrej Consumer Products (GCPL). “We’ve just taken another price hike on 1 July on soaps. So, we have done two stages of hikes over the last six months. Right now, palmolein is obviously high. It is moving in a very clear, higher range right now,” Kataria said.

GCPL will work towards preserving volumes, Kataria said. “At the same time, we are answerable for overall earnings before interest, tax, depreciation, and amortisation (Ebitda) margins. It will be a mix of calculated and measured price increases. We are much more conscious of cost controls than we ever were, whether it is fixed overheads or working capital or driving cost efficiencies,” he said.

In June, the Indian government reduced the effective import tax rate on crude palm oil to 30.25% from 35.75% per metric tonne. This was expected to help bring down edible oil prices in the retail market.

However, palm oil prices globally have continued to remain high. This is because of both higher global demand and a severe second wave of covid-19 infections in palm oil producing countries of Malaysia and Indonesia, which affected supplies. India imports a large part of its palm oil requirements from overseas.

Higher edible oil prices do not bode well for consumers and companies, with festivities around the corner, said an executive at a large packaged consumer goods company. “On the supply side, the stress will continue. Half of the calendar year is over and the production of palm oil is definitely lagging that of last year. This is primarily because the impact of the second wave of covid is much more in palm oil producing countries of Malaysia and Indonesia,” he said, requesting anonymity.

The executive foresees a continued shortage of palm oil and mustard oil, which comes from Canada.

SourceLive Mint
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