Cos Bet De­mand Hit Post Note Ban was Tran­sient, Raised Prices of Prod­ucts

The Economic Times - - Money -

of some prod­ucts in the Oc­to­berDe­cem­ber pe­riod, mostly to pro­tect mar­gins as in­put costs rose. In the last week of De­cem­ber, ITC in­creased prices of two of its best-sell­ing mid-mar­ket cig­a­rette brands by nearly 15%. United Spir­its in­creased prices in Kar­nataka, Ma­ha­rash­tra and West Ben­gal, which to­gether ac­count for more than 40% of to­tal sales vol­ume. This helped mod­er­ate the ad­verse im­pact of de­mon­eti­sa­tion on its De­cem­ber quar­ter per­for­mance.

Deal­ers said lu­bri­cant mak­ers Cas­trol and Gulf Oil both raised prices while Amul and Danone did so for some dairy prod­ucts. Amul raised prices of milk vari­ants by 3% while Danone raised them by 7%, ac­cord­ing to a Ko­tak In­sti­tu­tional Eq­ui­ties re­port. Amul butter became 5% costlier.

The cur­rency swap didn’t stop Maruti Suzuki, Tata Mo­tors and Ashok Ley­land from mak­ing their cus­tom­ary an­nual price in­creases this month across mod­els, hav­ing doled out sig­nif­i­cantly higher-than-usual dis­counts in De­cem­ber. Maruti Suzuki’s price hikes ranged from Rs 1,500 to Rs 8,000 in Delhi.

Ris­ing in­put costs have been a threat to the mar­gins of FMCG com­pa­nies. For the past two quar­ters, growth in HUL’s raw ma­te­rial costs have out­stripped that of rev­enue. Some of GCPL’s soaps became costlier and the com­pany is also cut­ting con­sumer and trade of­fers.

Soap brands like Lifebuoy To­tal, Vivel and Cinthol became costlier by 3-4%. Deter­gents also wit­nessed some up­ward move­ment, with Rin Ad­vance de­ter­gent bar go­ing up 6% and Surf Ex­cel Quick­wash de­ter­gent pow­der ris­ing 4%. Af­ter more than a year of price cuts in sham­poos, some brands rose, led by mar­ket leader HUL—it lifted Clinic Plus, Dove and Sun­silk prices 2-15%, a Ko­tak In­sti­tu­tional Eq­ui­ties re­port said. Ac­cord­ing to HUL, price in- creases hit sales in the per­sonal wash seg­ment. But this prospect didn’t de­ter com­pa­nies from raising prices, in­di­cat­ing the con­fi­dence they have about the im­pact of de­mon­eti­sa­tion be­ing tran­sient in nature and of re­gain­ing con­sumer de­mand lost due to the cash crunch, ex­perts said. It also re­in­forced the ar­gu­ment that dur­ing tough times, com­pa­nies seek to pro­tect the bottom line.

Since de­mon­eti­sa­tion was go­ing to take a toll in any case, com­pa­nies used the op­por­tu­nity to ju­di­ciously raise prices to beef up re­al­i­sa­tions and prof­itabil­ity, an­a­lysts said. Be­sides, in­creas­ing re­al­i­sa­tions ahead of the im­ple­men­ta­tion of the goods and ser­vices tax (GST) later this year also pro­vided some cush­ion for any neg­a­tive im­pact. In the process, the mar­ket seems to have lost some of its com­pet­i­tive spirit, seem­ingly putting the con­sumer at a dis­ad­van­tage.

“There is a lot of ra­tio­nal­ity in com­pe­ti­tion now,” said an an­a­lyst with a for­eign bro­ker­age. “If one com­pany, say the mar­ket leader, in­creases prices, other com­pa­nies fol­low suit rather than tak­ing the op­por­tu­nity to keep their prices lower and grab mar­ket share.”

In some seg­ments, es­pe­cially in con­sumer sta­ples, pro­mo­tions or dis­counts were dis­con­tin­ued so there wasn’t nec­es­sar­ily an in­crease in the max­i­mum re­tail price (MRP).

HUL also raised prices of se­lect vari­ants of Taj Ma­hal and Red La­bel tea by 2% and Nes­tle’s Nescafe 50 gm pouch was up 4%.

To be sure, not all con­sumer goods com­pa­nies have raised prices. Asian Paints and Jyothy Lab­o­ra­to­ries were among those that didn’t in­crease prices in the last quar­ter. Both re­ported 3% vol­ume growth each.

How­ever, the trend of ris­ing prices is likely to per­sist.

“We will see price-led growth on top of the grad­u­ally re­cov­er­ing vol­ume growth re­cov­ery,” said the­m­an­age­mentof GCPL­dur­ing an earn­ings call. HUL’s man­age­ment said on its earn­ings call that in­put cost in­fla­tion is ex­pected to con­tinue and the com­pany will keep raising prices to mit­i­gate the im­pact. It has main­tained its pledge to­ward struc­tural im­prove­ment in mar­gins.

“An­other 5% price in­crease is re­quired to com­pletely get back on track of mod­est mar­gin ex­pan­sion given that vol­ume growth will take some time to come back to over 5% lev­els,” Elara Cap­i­tal said in a note on HUL.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.