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A sharp increase in raw material costs, primarily copra and other edible oil prices, has seen home-grown FMCG major Marico Ltd cut back on consumer offers, translating to an effective price increase of 5-6 per cent in its coconut oil portfolio. It has also initiated a 15-20 per cent price increase across the Saffola Oils portfolio.
The company, however, is confident of maintaining margins in the 19-20 per cent range (for FY21 and FY22) and expects correction in copra prices April onwards, as the flush season sets in while the benefits of the ongoing cost rationalisation measures continue to accrue.
Motilal Oswal Financial Services, in a March report, maintains that price hikes taken by most companies earlier in the year and during the quarter (January-March), combined with continued stringent cost-control measures, should offer some relief from the sequential inflationary trends seen in most commodities.
Marico plans to scale down investments in hygiene products
According to Pawan Agrawal, CFO, Marico Ltd, copra prices — accounting for 50 per cent of raw material costs overall — are “on the higher side” and, after hitting a peak in December, have marginally corrected. From April, another 10-15 per cent price correction is expected.
However, keeping in view the northward movement of raw material prices over the last “few months”, the company decided to “roll back consumer offers” primarily in Parachute rigids (bottles) category. Consumer offers refer to freebies such as having a free smaller bottle with the larger ones, price-offs and so on.
“If we consider the reduction in consumer offers, an effective price increase of 5-6 per cent has been initiated in the coconut oils segment,” he told BusinessLine .
Strong sales
A similar story has played out in other edible oil segments as well, with the “oil table” for rice bran, soya and others (under the Saffola brand) hardening by 30-40 per cent YoY. Two to three rounds of price hikes have been taken in Saffola Oils since, translating to the 15-20 per cent price rise.
“However, the cost pressures should come down in the next two to three months. Operating margins could be under some pressure in the short term, but we will continue to focus on delivering healthy volume growth and market share expansion while also reaping benefits of operating leverage. We are confident of maintaining threshold operating margins over the short term,” Agrawal said.
Till December 2020, Saffola has delivered five consecutive quarters of “double-digit volume and value growth”. “Nearly 65 per cent of the sales have come from increase in overall penetration,” he added.
In addition, there has also been a rise in packaging material costs owing to an increase in crude oil prices.
Margins are already “cycling on a higher base” and despite some moderation in margins, the company is confident of maintaining healthy volume-led double-digit earnings growth over the near term.
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