Soap makers hike prices again to maintain margins2 min read . Updated: 03 Mar 2014, 12:08 AM IST
Wipro Consumer is raising the price of its Santoor soap as it seeks to maintain profit margins amid a rise in costs
Mumbai: Wipro Consumer Care and Lighting is raising the price of its Santoor soap as it seeks to maintain profit margins amid a rise in ingredient and packaging costs.
Wipro Consumer, the consumer business of entrepreneur Azim Premji, raised the price of Santoor by 4-5% this year, the second price increase in six months, chief executive officer (CEO) Vineet Agrawal said in an interview.
“Rupee depreciation hurt us a lot as most inputs are imported. This price increase was to cover the costs. We usually earn about 11-12% (operating) margins; we should be able to maintain that this year," Agrawal said.
Soap makers, including Wipro Consumer and Hindustan Unilever Ltd (HUL), had raised prices last September, partly to get back to earlier pricing levels after consumer goods companies had to adjust pack sizes to comply with new government norms in November 2012.
“Palm oil derivatives (the main input in soaps) prices have increased by around 8-10% over the past few months. Consequently, we have had to take calibrated price increases of around 3% in our soap portfolio," Vivek Gambhir, managing director of Godrej Consumer, said in an email.
Soap makers, unlike some other consumer product companies, are more rational about pricing, said Abneesh Roy, an analyst at financial services company Edelweiss Securities Ltd.
“Usually, there aren’t cutthroat price wars and most soap makers increase prices whenever input costs rise beyond sustainable levels. I don’t think price increases of 3-5% will have any impact on demand. They are too small for consumers to notice," Roy said.
For the year ended 31 March 2013, Wipro Consumer, which was separated from information technology services company Wipro Ltd last April, reported a revenue of ₹ 4,300 crore. Apart from Santoor, the company sells office furniture, bulbs, LED lights, and perfumes and other personal care products, generating about 52% of its revenue from its international business.
Consumer goods makers have seen a slowdown in sales growth across products due to continued weakness in the economy and sticky inflation. Growth in both urban and rural areas has dropped.
Wipro Consumer’s Agrawal said that though Santoor’s volume growth had dropped to 10% this financial year from 12% last year, the company, along with other branded soap makers, had taken market share from unorganized market firms.
“The unorganized players have been impacted much more and across categories. It’s the stress environment—input costs have risen and companies haven’t been able to get significant price increases because there’s pressure on demand. The smaller, unorganized players anyway work on thin margins and they’ve been squeezed even more," Agrawal said.
Edelweiss’s Roy said the local, unorganized players across consumer product categories had been hit significantly by the slowdown in growth and rising ingredient costs.
“These players, unlike the big companies, don’t have the know-how or the room to manage cash flow during tough times. They just don’t have the scale or efficiencies in operations," he said.
Wipro’s Santoor has also fared relatively better than some branded rivals.
Mint reported on 24 February that HUL’s soap brands Lifebuoy and Breeze lost market share in small towns and villages, compared with Santoor and Godrej No. 1, citing a 4 February report by Morgan Stanley Research.
“Our market shares are higher in rural compared with urban. Our distribution is very strong in rural areas and that’s where we are interested in," Agrawal said.