Hair oil firms may hike prices after raw materials see sharp spike
Mumbai: Hair oils saw the least pricing action last year, with most companies, including Marico, Dabur and Emami, going for no changes in at least two quarters. However, that may no longer be possible as these manufacturers are set to face pressure from rising raw material costs.
While Marico gradually increased prices between December 2016 and November 2017, brands by Dabur and Emami largely held on to their prices.
The prices of liquid light paraffin (LLP), mentha oil, copra, and coconut oil are among the fastest rising among relatively flat prices of key raw materials.
Prices of mentha oil have risen the most with a 107% increase in the last one year, and 93.6% in the last six months. Meanwhile, prices of light liquid paraffin—a key component of hair oils—has risen 35.3% in the last year and 8.9% in the last six months, as per data compiled by equities brokerage firm Jefferies.
For Marico, copra prices are the biggest headache with prices rising 92% in the last one year even as the company increased prices of the Parachute Hair oil 100ml by 13% in the last six months, according to data compiled by equities brokerage firm Kotak Institutional Equities Research.
A spokesperson for Marico declined to comment.
Dabur has kept prices of its Dabur Vatika Hair oil unchanged in the last 12 months, data from Kotak shows.
“We are witnessing inflationary pressure in select category of commodities,” Lalit Malik, chief financial officer, Dabur Ltd, said in an email reply. “We are monitoring the input price movement and shall take appropriate actions based on impact on margins and competitive scenario.”
Margins of Vatika coconut hair oil saw pressure during the quarter ended September 2017 because of rapidly rising copra prices, CEO Sunil Duggal had said during an earnings call on 31 October.
This comes at a time when FMCG firms are being closely watched under the anti-profiteering rules of the new goods and services tax (GST) regime. Hair oils saw tax rates fall to 18% under GST compared to 23-24% in the old VAT regime, prompting the government and consumers to expect a fall in prices.
“Amid GST-related rate cuts, consumer companies have refrained from taking price hikes despite inflationary pressure building in,” Varun Lohchab, an analyst at Jefferies, wrote in a note dated 29 December. “We expect consumer companies to start taking selective price hikes from Q4FY18 (quarter ending March 2018) onwards.”
“A sharp spike in LLP is likely to hurt hair oil companies like Marico, Emami, Dabur and Bajaj Corp,” said Rohit Chordia, analyst at Kotak Institutional Equities, in a note dated 21 December. “Sustained inflation in copra prices is likely to hurt Marico; our checks suggest that Marico is likely to initiate another round of price hikes in Parachute CNO (coconut oil) portfolio over the next few weeks,” he said, adding that steep rise in mentha oil prices is likely to impact Emami, whose biggest hair oil brand is Navratan Cool.