FMCG Firms Hike Prices By Up To 10% To Boost Profits As Demand Revival Lags

Fast-moving consumer goods companies have hiked prices by up to 10% as they look to boost topline growth hit by a sustained slowdown in demand.

Most categories including tea, coffee, health food drink, hair oil, shampoo and detergent powder have seen incremental prices hikes in February, with the exception of edible oil and soaps. The toothpaste category has seen the steepest price increase, consumer goods distributors told NDTV Profit on the condition of anonymity.

Hindustan Unilever Ltd., India's largest consumer goods maker has taken a 2-10% price increase for its Pepsodent range, according to its distributors. Colgate Palmolive India Ltd. has hiked prices by up to 10% across variants including Charcoal Clean, Sensitive Clove and Strong Teeth. The price of 100-gm Colgate Visible White was hiked 15%. Dabur, too, has taken a price hike of 8% for its 200-gm Meswak toothpaste.

In detergents, HUL has raised the prices of its brands—Rin and Surf Excel Quick Wash—by 3-4%. Peer Procter & Gamble also raised prices of its 700 gm and 1.5 kg Ariel detergent packs by up to 4% and 2.5%, respectively.

As milk prices largely remained stable, HUL has taken a 1% price hike for Boost and a 4% price hike for Horlicks Chocolate Delight. Similarly, Cadbury has raised the price by 2% for Bournvita Pro Health and 4% for Bournvita Lil Champ. Zydus Wellness, too, effected a 5-8% price hike for Complan.

An Emkay report on their monthly price checks confirms that soaps and edible oil were the only two categories with negative prices, while other categories have seen incremental price hikes during the month.

In edible oil, the brokerage noted that Marico maintained its prices for Saffola variants, while single commodity oil players have cut prices after recent government directives.

The biscuit category has seen mixed pricing with Britannia's Rs 25 Good Day Butter seeing a cut of 17% via higher volume. Britannia cut the price of Nice Time by 13%, while it increased the prices of 50-gm Bourbon by 20% and 160-gm Milk Bikis by 7%, Emkay said.

The topline growth of FMCG companies was weaker than expectations in the preceding quarter ended December. This was because the pricing growth in the market continued to tail off and hopes of demand recovery from Q3 FY24 didn't materialise. The management commentary on the demand outlook remains muted, with the companies now banking on recovery from the strong summer season, followed by better monsoons.

"In the near term, we remain cautiously optimistic," HUL's Managing Director and Chief Executive Officer Rohit Jawa said in a post-earnings media briefing. "We expect the gradual recovery in market demand to continue, aided by increased government spending, a recovery in winter crop sowing, and better crop realisations."

Rural income growth will be a key factor in determining the pace of recovery, said Jawa.

Among other companies, Emami Ltd. said it will take a price hike of 3%, while Dabur India Ltd. increased prices by 2.5% across its food portfolio in the third quarter, part of which has flowed in the current quarter.

"Price increases, definitely will come," according to Dabur Chief Executive Officer Mohit Malhotra. "I think price increases going forward in the year will depend upon how inflation is actually trending."

As for non-food, other than toothpaste Dabur has also taken a price hike of 5% for Dabur Sarso Amla hair oil. Marico Ltd., too, has taken a 11% price hike for 200- and 300-ml stock-keeping units of Parachute, while Bajaj Consumer effected a price hike of 3% for the 475-gm Bajaj Almond Drops.

Copra prices have seen moderate inflation on month-on-month basis. But the key raw material for hail oil companies is expected to see a correction in prices April onwards, as the flush season sets in. But once the seasonal months are over, Marico expects prices to "definitely" have an upward bias.

"If you look at history of Marico the sweet spot for us, especially in Parachute, is a scenario as follows: low food inflation, copra inflation, therefore we position gains as we deliver high volume growth and profitability is protected," said Marico MD and CEO Saugata Gupta. "We see that scenario likely to happen in the second half of next year."

Analysts expect further price hikes to help companies with earnings delivery. "Contrary to the common perception of FMCG companies effecting price cuts to pass raw-material benefits, players are emulating the case for price growth in line with inflation ahead," according to Nitin Gupta, senior research analyst at Emkay Global Financial Services Ltd. "We now see the emergence of a scenario where further price hikes should help companies drive margins, which will support double-digit earnings momentum."