The Hindu Business Line : P&G to raise prices of Tide, Ariel next month

Procter and Gamble's (P&G) decision to raise the prices of select pack sizes of Ariel and Tide by 5 per cent has some equity analysts thinking so. "Obviously P&G is confident of strong demand, prompting it to go for the price increase," one of them said indicating that no FMCG company in the prevailing scenario would take a chance with its market share.

The price increases come into effect early March and have been undertaken in keeping with raw material costs ``that have led to inflationary pressures", P&G said on Tuesday. The prices of 1 kg Ariel, 200 g Tide and sachets of both Ariel and Tide will remain unchanged.

While P&G's official statement did not mention the packs affected by price revision, analysts said that the company had raised prices for 1 kg pack of Tide and 500 g pack of Ariel. The primary input in detergents is linear alkyl benzene (LAB), price of which has risen steeply, one industry official estimating the increase at Rs 10,000 per tonne over the last three months. LAB's price gain is directly related to the uptrend in crude oil price.

The market speculates, India's largest FMCG company, Hindustan Lever Ltd (HLL), will follow suit. Industry representatives and equity analysts tracking the sector point out that input cost increases have been gnawing at the margins of companies in the FMCG segment, which itself has been on a downturn for the last couple of years.

Any price increase, therefore, augurs well for HLL though it may not necessarily help in shoring up the FMCG major's bottomline. For some months now, it has been at the receiving end of P&G's price war in detergents and bars, a market development HLL officials used to bravely relegate to a `wait and watch' category.

For the first nine months of 2004, soaps and detergents had accounted for 45 per cent of HLL's turnover of Rs 7,326 crore.

"HLL is wont to increase prices of its detergents. But input costs have risen much more than five per cent. Therefore, any price hike would mitigate the impact of raw material price rise but not completely negate them," said another analyst.

HLL, when contacted, said it had not yet increased the prices of its bars and detergents. "Price increases in HLL are undertaken based on many factors including market forces, product standing, cost of formulation and packaging. We are engaged in this evaluation," went the official response from HLL. There is also the issue of protecting market share.

But there are indications that HLL may go in for a price hike shortly. That the stock market is anticipating a price increase from HLL was betrayed in how the share price of the FMCG company moved up on BSE. It ended trade on Tuesday at Rs 168.80, up by 5.5 per cent or Rs 8.95.

At HLL, top officials have always maintained that they are not daunted by the price war unleashed by P&G during the June quarter. Privately, there was belief that a price reduction in the face of increasing input costs was simply unsustainable.

HLL's response was to up its advertising and promotion expenses. For the nine-month period ending September 2004, its A&P spend was up at Rs 658.71 crore (Rs 589.35 crore). The company believes that in upping its A&P spend, it is investing for the longer term. ``We are investing to meet the challenges head on, some initiated by ourselves, some being uneconomic actions thrust on us to which we have to respond,'' a senior official had told Business Line after the second quarter results.

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