Consumer companies mull price hikes as costs soar

Consumer companies mull price hikes as costs soar
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First Published: Mon, Jan 11 2010. 05 09 PM IST
Updated: Mon, Jan 11 2010. 05 09 PM IST
* Food firms may be forced to raise prices
* Prices of key inputs such as sugar at record levels
* Forward covers soften the blow for some firms
Mumbai: A surge in commodity prices may force consumer firms, particularly makers of eatables, to push up product prices in a calibrated manner in the next fiscal, industry officials said.
Costs of essential commodities including sugar and milk have soared in the recent past with sugar prices scaling new peaks in January as a rally, which more than doubled prices in 2009, still shows no signs of losing momentum.
Prices of other raw materials such as edible oils have also begun to rise as the larger food price index rose 18.22% in the 12 months to 26 December.
“It will be a common trend particularly in food companies such as Britannia, Nestle (India) and ITC, as prices of sugar, milk is going up,” said Anand Shah, an analyst at Angel Broking.
But, rather than hiking prices directly, the companies may prefer to reduce the grammage per pack, he said, adding that further increases in input costs may lead to price hikes as well.
Firms such as Godrej Consumer, Marico Ltd and Nestle India have indicated that a decision will be taken in the next few weeks.
“We have not taken a call as yet (on raising prices). It is only over the next few weeks or so that we will take a call. I don’t think anything is warranted immediately,” said Chaitanya Deshpande, head of mergers & acquisitions and investor relations at Marico makers of the edible oil ‘Saffola´.
Some like Dabur India have already raised prices earlier in the fiscal and do not have plans to raise prices, at least in the near term, others such as Nestle India are guarded, when asked about their plans.
“Rising commodity prices, especially milk solids and sugar continue to pose a big challenge. When considered necessary... we will resort to effective increases in realisations,” said Himanshu Manglik, spokesman for Nestle India.
Planning, Hedging
Dabur, which makes edible products such as Chyawanprash and Dabur Honey has already raised prices of these products by 2-3% in the first half of the fiscal.
“Dabur works on a principle of advance planning and projections and so, raw material impacts are built into the system at the beginning of the year, ” chief financial officer Rajan Varma told Reuters.
Others like Godrej Consumer are benefiting from commodity hedges on palm oil, its key input, as well as zero import duty on crude palm oil, according to Dalip Sehgal, managing director.
The first target for the increases are likely to be premium products, analysts say.
“Firms will go for a price hike, but they will be selective in doing that. They may go in for premium end products which have greater affordability than mass consumption products,” said Neha Pathak, analyst at KR Choksey.
“They will wait and watch for this quarter (for inflation) and accordingly take a call,” she said.
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First Published: Mon, Jan 11 2010. 05 09 PM IST