Rising input costs are putting the squeeze on Indian FMCG companies that are already feeling the heat from a sliding rupee. Due to higher costs of imported raw materials in packaging, crude oil and palm oil, FMCG companies are now opting for price hikes to tide over the situation.
While Wipro Consumer Care & Lighting (WCCL) has undertaken a price hike for its flagship soap brand Santoor, Parag Milk Foods raised prices for its select milk brands recently. FMCG major Godrej Consumer Products Ltd (GCPL), makers of Cinthol soaps, is biting the bullet soon, while Dabur India is considering a similar move for some of its brands in the next few days.
Meanwhile, other FMCG companies like Asian Paints and ITC Foods are also mulling price hikes to offset the rising input costs.
In essence, the R1,85,000-crore Indian FMCG industry will soon witness major price hikes in personal care, dairy business, paints and detergents sectors. For the common man, the falling rupee is going to hit where it hurts the most—the pocket.
On the impact of the weakening rupee on FMCG companies, Vineet Agrawal, president of WCCL, said: “There’s a clear impact on raw materials like palm oil and packaging materials. We have increased prices of our Santoor brand by 5% from R21 to R22. We are mulling price hikes in other brands too.” The rupee deprecation is leading to an increase in fuel prices and transportation costs, he added.
Sharing similar sentiments, Adi Godrej, chairman of GCPL, said the rupee depreciation has impacted all companies across the country. “As costs have gone up, we will accordingly take price hikes soon. It has impacted all our GCPL brands in different degrees,” he said.
Like personal care companies, dairy majors are also feeling the impact of the weakening rupee in the past two months.
Devendra Shah, chairman of Parag Milk Foods, said with the increasing dollar exchange rates, the company is raising prices of skimmed milk powder to the tune of R215 to R225 per kg as against R170 to R180 per kg a few days back. “We have just increased raw milk procurement prices paid to farmers by R2.50 to R3 per litre in Maharashtra,” he said.
What will be the impact of fresh price hikes on consumers and FMCG companies? Nitin Mathur, consumer research analyst at Espirito Santo Securities, said the consumer sentiment has declined further following high inflation and lack of employment opportunities in India.” What needs to be seen are the impact on volumes if the levels of prices increase,” he said.
Industry analysts point out that the depreciation of the rupee has a major impact on paint companies in India. “As crude oil is a key ingredient in paints, these companies will soon opt for price hikes to protect their margins,” said an industry analyst with a domestic firm.
On Asian Paints' strategy, KBS Anand, its managing director and CEO, said, “The fluctuations in crude, currency and other raw materials are a regular part of the business environment. We review these changes on a regular basis and attempt to price our products to optimise both growth and profits.”
Like other FMCG companies, ITC Foods is also reviewing the market sentiments before taking a final call on price hikes. “There's a significant impact on the costs of oil and oil derivatives and in the prices of packaging materials with the depreciation of the rupee. FMCG majors may need to consider price hikes to offset cost pressures,” said Chitaranjan Dar, CEO of ITC Foods.
Based on the overall inflationary impact, Dabur India may consider a price hike on a selective basis. “The rupee depreciation has an impact on certain products like packaged juices. However, it is partly offset against exports and partly by translation impact on consolidation,” said Lalit Malik, CFO of Dabur India Ltd.
However, in sharp contrast to other FMCG companies’ pricing strategies, Parle Agro has no plans to revise prices at this point of time. “Most of our raw and packaging materials are sourced from within the country. Earlier, we used to import cans for our fruit drinks. Now, the same company has set shop in India,” said Nadia Chauhan Kurup, joint managing director of Parle Agro.
India depends on imports for a large part of crude oil it consumes, and a weak rupee will influence petrol and diesel prices. As a result, fast moving consumer goods such as soaps, detergents, deodorants and shampoos, of which crude oil is an input, are likely to become more expensive in the next few months.