FMCG companies raise prices to absorb rupee shock

Prices of key inputs such as palm oil and caustic soda & soda ash continue to remain flat this year

With companies such as Hindustan Unilever (HUL), Colgate and GSK Consumer raising prices two-12 per cent to offset the pressure of a volatile rupee, products such as toothpastes, soaps, moisturisers and creams are set to cost more.

For market leader HUL, the current round of price rises would be the second in two months. In July, the company had effected a seven per cent rise in the prices of select products such as Dove and Lakme. While analysts said both rounds were aimed at protecting margins, the pressure to increase prices across the board was mounting, as the rupee fluctuated widely.

“Just as there are ramifications for companies when the rupee depreciates against the dollar, there are implications when the rupee appreciates against the dollar,” says Nitin Mathur, analyst (consumer & retail), Espirito Santo Securities. “Both ways, it puts pressure on companies because hedging becomes a little difficult.”

After depreciating about 20 per cent between August and early September to 68/dollar-levels, the rupee has strengthened to 63/dollar in the last few days.

Prices of key inputs such as palm oil (used to make soaps) and caustic soda & soda ash (used to manufacture detergents) continue to remain flat this year. In the quarter ended June, companies passed on the gains made on account of lower commodity costs to consumers through promotional offers in the soaps & detergents categories. But this might not be so in the coming quarters, owing to the rupee’s volatility. “Palm oil is imported. So, gains made due to lower prices are nullified because of the rupee movement. I expect more companies to follow HUL and increase product prices,” says Abneesh Roy, associate director (research), Edelweiss.

Godrej Consumer, Wipro and Reckitt Benckiser were expected to increase product prices soon, said those in the know. When contacted, the companies neither confirmed nor denied this. Emami declined to specify whether it was increasing prices. The marketplace buzz is the maker of Zandu Balm and Boroplus has effected a three-five per cent increase in its portfolio. Naresh Bhansali, chief executive officer (finance, strategy & business development), Emami, said he was not in a position to comment on price rises.

Colgate and GSK’s move to increase the prices of brands such as Colgate Active Salt, Colgate Max Fresh and Sensodyne Rapid Relief is expected to nudge companies such as Procter & Gamble to consider a price rise for its Oral-B toothpaste. The rise in the prices of essential goods follows a 10.3 per cent price rise announced by cigarette major ITC last week. The Kolkata-based company had increased the maximum retail price of brands such as Gold Flake Kings, Gold Flake Lights and Classic to offset duty increases. This was the second price increase by the company in a month.

In July, it had raised cigarette prices seven per cent.