What's holding FMCGs down?

FMCG sector has come under pressure despite the strong demand outlook due to the rising raw material prices.

Home and Personal care (HPC) companies are particularly impacted as the impact is highest among these segments.

Home and Personal Care companies to see margin erosion in March quarter. Palm Fatty Acid Distillate (PFAD) is witnessing steep inflation during the quarter due to 36% YoY increase in palm oil prices.

PFAD is the key raw material for soap manufacturers, HUL and Godrej Consumers.

High-Density Polyethylene (HDPE) has also witnessed a surge in prices, up 28% YoY, during the current quarter as Crude prices have increased 16% YoY. HDPE is a packaging raw material.

The surge in Crude and HPDE will impact all FMCG companies.

Copra prices have continued to remain in an uptrend.

It has increased by about 24% YoY and 5% QoQ. During the quarter, other important raw materials like

Liquid paraffin oil (LLP) is up 28% YoY and 16%. It is a key ingredient for hair oil. It will put pressure on the margins of Marico along with inflation in HDPE.

Marico has already increased the prices of Parachute coconut oil to mitigate the impact of the rising cost of copra. It is likely to take a price hike in its value-added hair oil categor y as well during the quarter.

Paint companies have also started to witness the impact of inflation in key raw materials like Crude, TiO2, and HDPE.

Inflation in Titanium Dioxide (TiO2), key raw material for paints, has gone up by 9% YoY and 3% QoQ. Crude prices have also gone up 16% YoY.

Among the Agri commodities, wheat prices have dropped by 5% QoQ benefiting foodbased FMCGs like Nestle and Britannia.

However, that impact is nullified by the hike in milk prices which has gone up from Rs 24 to Rs 31 in last six months. Prices of Palm Oil and Coffee also continue to remain on a higher side.