FMCG firms unlikely to reduce prices for now

STIMULUS PACKAGS IMPACT

Consumers hoping to see a price reduction on their favourite soap, detergent or shampoo in the wake of the recent excise duty cut, will have to wait for another three-six months as leading fast moving consumer goods (FMCG) companies are adopting a wait-and-watch policy.

The FMCG sector has seen a price hike of 8-10 per cent over the year due to an increase in commodity prices. However, commodity prices have softened since September and now they have the added benefit of the government giving them a 4-per cent central excise duty reduction.

However, most of the leading FMCG companies such as Hindustan Unilever (HUL), Godrej, Dabur and Marico have manufacturing units in excise duty-free zones like Jammu, Uttaranchal and Himachal Pradesh.

“The excise duty cuts announced by the government will not really be beneficial to us as our manufacturing units are in the excise free zones,” says Harsh Mariwala, chairman and managing director, Marico.

Additionally, the sector is also stuck with inventories bought during peak prices. C K Ranganathan, managing director, CavinKare, says: “The government has taken very proactive measures and this will surely help us. However, as we still have old inventories bought at peak prices earlier this year (crude oil price was hovering around $150 per barrel in July, whereas it is currently trading at $43), it will be another three months before we can effect a price cut.”

Categories which are likely to benefit are bottling plants, or manufacturing of certain snacks, which have their manufacturing units close to the consumers and markets. “We were under enormous pressure in the last few months to increase our prices, but we held on. We are now relieved as we don’t need to consider a price increase,” says Nadia Chauhan, joint managing director and chief marketing officer, Parle Agro, the maker of packaged water Bailey and mango drink Frooti.

The government had also announced measures to reduce the impact in terms of cost benefits on raw materials and packaging materials for the sector so as to boost demand. “The benefits of these measures still need to be assessed and it is to early to comment,” says a Dabur spokesperson.

FMCG sector analyst Anand Shah of Angel Broking says the soaps and detergents categories would be benefited by the government relief measures and correction in commodities.

However, “companies are currently absorbing any benefits that they will accrue as they are adopting a wait-and-watch policy. It will be at least another 3-6 months before we see any drop in prices,” says Shah.