FMCG cos rule out price cut despite fall in raw material costs

Import prices of palmolein-a key ingredient in many FMCG products-have gone down to Rs54,400 per tonne as on 24th June from Rs57,500 per tonne on 11th  May.  However, the companies are not in favour of passing the benefit to the customers as they have to offset hits taken when the commodity prices were high

New Delhi: Fast moving consumer goods (FMCG) firms are set to gain from decline in palm oil and other commodity prices, but most of them ruled out cutting prices of their products, reports PTI.

According to a report by IIFL Institutional Equities, personal-care companies-including Emami, Godrej Consumer and Marico-are likely to benefit the most, while Hindustan Unilever (HUL), despite gaining temporarily, is unlikely to sustain it due to competitive intensity.
As per data from the Solvent Extractors Association of India (SEA), import prices of palmolein-a key ingredient in many FMCG products-have gone down to Rs54,400 per tonne as on 24th June from Rs57,500 per tonne on 11 May 2011.

The companies, however, said there is no scope on of passing the benefit to the customers as they have to offset hits taken when the commodity prices were high.

"Price cuts are not at all likely as we had not taken up prices in line with the highest raw material prices," Godrej Consumer Products chairman Adi Godrej said told PTI.

Similarly Dabur, which sells personal care products and hair oils, said it will not reduce the price of its products as the usage of palm oil in their products is limited.

"Though there has been change in the commodity prices, it has not gone down in a comfortable level. Palm oil prices have decreased but it needs to be seen if it brings about change in the vegetable oil prices," Dabur India head procurement Sumit Mukherjee said.

Yet, Kolkata-based Emami has already decreased the prices of its edible oil brand 'Healthy and Tasty' by up to 10%.

"We have made some corrections of our edible oil prices.

Going forward, we would look at making more price changes.

However, this will also depend on the market scenario as well," Emami director Aditya Agarwal said.

According to IIFL Institutional Equities report, the beneficiaries of the commodity price change would be home and personal-care companies, including Emami, Godrej Consumer and Marico.

"If there is a sustained reduction, the key beneficiaries would be home and personal-care companies that have high pricing power and would not need to undertake price cuts," the report said.

Emami, Marico, Colgate and Godrej Consumer, with relatively higher pricing power, would be able to sustain their margin gains if commodity prices remain low, it added.

The report, however, said HUL would gain only in the near-term but benefit was unlikely to sustain due to competitive intensity.

"In the soap and detergent category competition would intensify from aggressive such as P&G and ITC and unorganised players that typically halt operations in a scenario of higher commodity prices," the report said.

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