The Hindu Business Line : Costlier fuel not to push FMCG prices up

As it is prices of several products, including toothpaste, shampoo and detergents, have seen an increase in the last few weeks. So this time round competitive pressures are forcing the companies to absorb the input cost increase.

However, the industry seems to be a worried lot. First, it was the introduction of VAT, then the delayed and erratic monsoon, and now the hike in petrol and diesel prices will jack up input costs. After a gap of over two years the industry had just begun to show signs of revival, with most categories clocking brisk sales.

Acknowledging that input costs will go up as a result of the petro price increase, the Chief Executive Officer of Dabur India Ltd (DIL), Mr Sunil Duggal, told Business Line, "Freight accounts for only 5 per cent of our costs and 2-2.5 per cent of revenues, so there is no immediate reason to jack up end prices for the consumer, but margins will definitely come under pressure."

He said that the June quarter is seeing lower than expected growth due to the uncertainty over the VAT regime. "The next two quarters could see good growth only if the monsoon is generous," he said.

Echoing Mr Duggal's sentiments, a carbonated soft drink (CSD) industry official said that the latest petroleum price increase will "dent the bottomlines of CSD companies. This year, CSD sales have already seen at least a 10 per cent de-growth between March and June. With a further increase in input costs, things are unlikely to get any better."

He said the late onset of summer and increased product prices have been the main reasons for de-growth, but the industry was expecting the next two quarters to be better.

Officials belonging to an FMCG major said that though growth would be lower because of the increase in petroleum prices, another round of product price hikes was unlikely. "Yes, bottomlines will get affected after petroleum prices have risen. After all, raw materials account for 55 per cent of costs in manufacturing a shampoo. But I do not see any immediate price increases happening. We have just increased prices across detergents and shampoos."

Mr Amit Adarkar, Vice-President at market research agency Synovate also allayed fears that the increased input costs would lead to FMCG goods becoming costlier.

Apart from worries over the input cost increase, the FMCG sector is already looking towards the rain gods for growth. Almost half of the sector's sales come from the rural markets, where buying slows down if monsoon plays truant.

With indications that this year too the monsoon has been delayed and rural demand has failed to pick up in the first five months of the year, FMCG companies are keeping their fingers crossed.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page