FMCG companies are likely to hike prices by 3-4 per cent in the June quarter to mitigate raw material cost pressures, according to a report by Nuvama Institutional Equities. It added that in categories such as paints, edible oils, soaps and detergents, it could be even higher.
“In our view, companies typically maintain 30–45 days of raw material and finished goods inventory. Hence, we forecast price hikes are likely to be in Q1 FY27. Higher crude oil prices and rupee depreciation have raised input cost pressures, mainly through higher packaging costs, which comprise about 20 per cent of costs. We forecast at least 3–4 per cent price hikes in Q1 FY27 if current raw material inflation persists. Paints, edible oil, soaps and detergents could see even higher hikes,”Abneesh Roy, Executive Director & Head of Research Committee, Nuvama Institutional Equities, stated in the report.
He added that to manage rising input costs, FMCG companies are recalibrating pricing strategies and packaging structures through grammage reduction in smaller packs to maintain affordability and price hikes in larger packs, where consumer sensitivity is lower.
Geopolitical crisis
The report pointed out that edible oil companies have already raised prices by ₹4-5 per litre in recent weeks due to the impact of the ongoing geopolitical crisis. It also pointed out that inflation in palm oil is likely to increase cost pressures for soap manufacturers where palm oil derivatives are a key raw material. Also, food companies may also go for a price hike in the June quarter due to palm oil inflation. “India remains heavily dependent on imports for edible oils, primarily crude palm oil, crude soybean oil and crude sunflower oil, which together account for 89–90 per cent of India’s total vegetable oil imports,” the report added.
For paint companies, nearly 40 per cent of raw materials are linked to crude derivatives and the recent increase in crude oil prices has started translating into higher input costs. Most companies have already taken one round of price hike and are expected to undertake a second round in June quarter depending on crude prices, the report added.
Meanwhile, shortage of commercial LPG has also impacted FMCG companies. “Packaged food companies across India have halted or reduced production at LPG-dependent plants due to an acute fuel shortage amid the ongoing West Asia conflict. For most FMCG companies, power and fuel costs constitute a relatively small portion of the overall cost structure. Some manufacturers are shifting to alternative equipment such as induction systems and electric fryers though the transition is operationally challenging,” the report by Nuvama Institutional Equities added.