FMCG growth gets immune to price hikes

The recent price hike in various fast moving consumer goods (FMCG) categories has not impacted the volume growth.

Analysts say the sector is expected to see a double-digit sales growth year-on-year for the April-June quarter, backed largely by an improved demand. Quite a few companies increased product prices by 5-15 per cent in the first quarter, perhaps the highest in the last two years.

According to an analyst at ICICI Securities, the sector is likely to see around 12 per cent sales growth, much higher that what was witnessed in the corresponding quarter last year.

The growth is also likely to be broadbased with most companies registering at least five per cent growth.

Colgate-Palmolive and Hindustan Lever Ltd (HLL) had recently increased prices of their toothpaste brands by about 5 per cent on the back of rising input costs.

Godrej Consumer Products Ltd (GCPL) effected a 14 per cent price hike in its hair dye category "" the first such instance in 10 years "" despite no increase in input costs.

Marico Ltd maintained prices of its coconut oil products despite reduction in input costs.

HLL further raised prices of its shampoo products by 7-10 per cent, fairness cream by 5 per cent, and 6-10 per cent for its talcum powder brand.

These increases did not affect its sales, say analysts. To some extent that could be because the hikes have been largely nominal.

However, it is indicative of a decline in the down trend seen in recent years, and a return of pricing power for the industry, they say.

An FMCG analyst with a brokerage house says that the price hike augurs well for margins over the medium term.

Paints companies "" Asian Paints and Goodlass Nerolac "" are expected to see their topline boosted by price increases undertaken in December 2004 and March 2005, respectively.

ITC's cigarette sales figures are likely to see growth despite price hikes effected in March and this month.

Nestle, which had recently raised prices in key categories such as noodles, coffee, UHT milk and powder milk, is also expected to see considerable sales growth.

While sales growth in calendar 2004 was urban-led, rural markets began to grow in the first half of 2005, and the trend is set to continue.

In keeping with the market sentiment and expected further rise in input costs, analysts are betting on more price increases in the coming months.