War impact: FMCG companies hike prices in Feb as raw material prices pinch

According to analysts, inflation in palm oil is particularly worrying, as it is a key raw material for nearly all FMCG companies, especially soap manufacturers and to some extent food players.

Fast-moving consumer good (FMCG) companies hiked prices of soaps, detergents, toothpastes, shampoos and select food products like coffee, biscuits and juices in February as raw material prices continued their upward trajectory.

The armed conflict between Russia and Ukraine has impacted prices of agri-commodities since the region is a key exporter of food grains and edible oil. Crude oil prices surged on fears of a supply crunch, given that Russia is a major oil-producing nation.

While companies have found it difficult to pass the full impact of raw material price inflation onto customers for the fear of losing out on the rising demand after a prolonged lull due to the pandemic, some increases will continue well into March. This will lead to a further contraction in the gross margins of most staple companies in the fourth quarter on a sequential basis. Continuous rise in raw material prices had hit gross margins of FMCG companies in the December quarter, which were down 300-800 basis points on a year-on-year basis.

In February, price hikes in soaps continued on a month-on-month basis due to elevated palm oil prices. Hindustan Unilever (HUL) raised the prices of Lifebuoy and Dove soaps by about 6% and 4%, respectively, while Godrej Consumer Products (GCPL) increased prices of Godrej No 1 by about 17-27% and Cinthol by 3-4%. HUL has raised the prices of facewash across brands in the range of 5-9%. Price hikes were also seen in fabric conditioners, dishwashing bars and men’s grooming, according to a Kotak Institutional Equities (KIE) report.

In the home care category, prices of detergents have gone up compared to January in the range of 2-5%. P&G hiked the price of Tide by about 3%, and HUL increased prices of Surf Excel and Rin detergent powders by 2-5%. Dabur has increased the price of Sanifresh toilet cleaner by about 16%.

Colgate has raised prices of select toothpastes by 7-11% while mouthwash prices have gone up by 7-15%, compared to January. In shampoos, HUL increased prices of Tresemme by about 7% while P&G raised the prices of Pantene/ Head & Shoulders by around 10%.

According to analysts, inflation in palm oil is particularly worrying, as it is a key raw material for nearly all FMCG companies, especially soap manufacturers and to some extent food players.

“Even more concerning is the surge in the last few days, with prices touching record highs of over MYR8,100/MT, a 60% increase over average prices in December 2021. The situation was exacerbated further by the recent restrictions on palm oil exports by the Indonesian government and Ukraine being a major exporter of edible oils,” according to a recent report by Motilal Oswal.

Prices of palm fatty acid distillate have also followed a similar trend, with prices rising 49.2% y-o-y and 14.4% q-o-q.

According to a KIE report, the rising palm oil prices will be a negative for HUL, GCPL and Jyothi Laboratories. “Increase in sunflower and groundnut oil can impact Marico, while rising wheat prices can hurt ITC, Nestle and Britannia,” it said. Additionally, inflation in crude and derivatives implies higher packaging costs for all companies.

The commodity price inflation has affected food products too. Nestle raised the price of Nescafe coffee by 6% and Nestea Ice Tea by 11%. HUL has raised the price of Bru coffee by about 3%, while Britannia hiked prices of dahi by about 25% and cakes about 10%.

With the Russia-Ukraine region being a major exporter of food grains, barley supplies will remain a key monitorable, said analysts. Prices continue to inch upward and have seen a 62.2% y-o-y surge and 4.8% sequential rise in the running quarter, recording a fresh high of `2,524 per quintal in February.

Consequently, HUL has hiked prices of select Horlicks mixes in the range of 2-4%, while Dabur has raised prices of select SKUs of Real juices by 4-5%. In biscuits, ITC has hiked prices of select SKUs of Sunfeast by 3-17%, while Britannia has raised prices of Tiger glucose by 15%. Parle has increased price of Krackjack by about 18%. ITC has increased the price of Aashirvaad Atta by 2%. “We also saw some selective price hikes in dairy from Nestle and spreads by HUL,” analysts at KIE said.