FMCG firms may hike prices to offset inflationary pressure on raw material

Consumers may have to shell out more money for their daily use products as FMCG firms, which are facing inflationary pressure on their key raw material inputs, are considering marginal hike on their products price to offset it.

Some FMCG companies like Marico and others have already gone for price hike, while some which include Dabur, Parle and Patanjali are closely monitoring the situation.

FMCG players have been trying to absorb the price increase of raw material inputs such as coconut oil, edible oil and palm oil, but they are unlikely to hold the prices of their commodities for a long time as that will impact their gross margins.

"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 cyclic 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 per cent."

Dabur India CFO Lalit Malik said the recent months have seen inflation 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's still a 'wait and watch' situation and yet to take a final call on this but hinted that it is also moving in that directions.

"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 own brands as Saffola and Parachute, has faced inflationary pressure 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 are up sharply such as palm oil, tea, copra, edible oils etc.

"Price growth will come back in 2021 for the consumer companies after raw material pressure starts impacting their gross margins," he said.

However, Roy also added that the consumer companies have other cost levers to cushion this impact at 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.