Marico, Tanishq join other FMCG firms in recovery but inflation a worry

Topics Marico | Tanishq | FMCGs

Tanishq has been experimenting with its raw materials, using certain alloys in its products which will enable the company to create its flagship designs, but at a lower weight | File
Recovery signs are getting better for fast-moving consumer goods (FMCG) companies in the December quarter (Q3) of FY21. This week, Marico, Godrej Consumer (GCPL) and Tanishq, which is the jewellery division of Titan, said they expected double-digit sales growth in Q3, coming on the back of strong demand in the festive season. The statements were part of their quarterly updates.

However, analysts caution that the recovery could be hampered by commodity inflation, which is growing steadily. In the past four months, crude oil, for instance, has jumped nearly 25 per cent, data compiled by BS Research shows. A spike in the price of crude affects derivatives such as linear alkyl benzene (LAB) and high-density polyethylene (HDPE).

LAB, for the uninitiated, is used in making detergents and constitutes 60-70 per cent of the latter’s input cost. HDPE is used in packaging material for all essential consumer items from soaps to detergents, hair oils, creams, shampoos and toothpastes. Packaging costs of these products constitute 15-20 per cent of overall production cost for companies.

An increase in price of these inputs, said G Chokkalingam, founder of Equinomics Research & Advisory, would hurt margins for companies, putting pressure on them to raise product prices.

Palm oil, which goes into the production of soaps, has jumped 27 per cent since September, while copra, an input used to make coconut oil, has increased 31 per cent. 

Companies admit that price hikes are imminent. “Price hikes will be there in the March quarter (Q4) because companies will not be able to absorb input cost pressures like they did in Q3. But I expect price hikes to be judicious so that consumer sentiment is not impacted much,” Mohit Malhotra, chief executive officer (CEO), Dabur India, said.

Harsh Mariwala, chairman, Marico, said, “A lot depends on what is your portfolio of products and where is the inflation coming from. If price hikes are done in a calibrated manner, the impact will not be severe. Consumers will be able to stomach the price hike.”  

Expectations are that price hikes of 3-5 per cent will kick in from February across FMCG categories, as companies adjust to inflationary pressures. Titan, on the other hand, has said that it will introduce lightweight jewellery to attract customers as gold prices remain volatile.

“The customers we are targeting are not economically stressed. However, they are affected by overall sentiment. Since gold prices have increased in the past few months, consumers may not increase their budgets in proportion to that. So, we will need to bring down the weight of our products by up to 20-30 per cent,” Ajoy Chawla, CEO of Titan’s jewellery division, said.

The jewellery maker has also been experimenting with its raw materials, using certain alloys in its products which will enable the company to create its flagship designs, but at a lower weight. This will be launched as a pilot project shortly.

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