The Hindu Business Line : Petro price hike adds to woes of FMCG, consumer durable cos

IT is like the proverbial cup of woes running over. Even as FMCG companies have been trying to absorb the steep input cost increases over the last three to four months, the Government's decision to hike petroleum and diesel prices appears to be the last straw.

In the case of the consumer durable companies, it is like a double whammy since the hike comes at a time when sales are traditionally at a peak.

The latest petro-dampener follows a steep increase in raw material costs of sugar, plastics used in packaging, base oil used for making hair oils and steel. Despite the steady increase in costs, most companies - cutting across respective sectors - are in no mood to spoil the party for the consumer. However, maintaining prices for the end-consumer is becoming increasingly difficult.

Several companies have already taken the plunge and increased prices marginally. For example, prices of soft drinks, hair oils, certain shampoos, packaged tea and other FMCG products have already been hiked. The latest salvo could well mean further hikes, albeit not immediately.

A soft drink industry official said, "How we wish that consumer product pricing was based on the `cost plus' formula! Unfortunately, even when there has been a steep increase in input costs, the soft drink industry has been unable to pass the entire quantum to the consumer due to severe competitive pressures. So, the overall inflationary effect could lead to further price hikes; but both Coca-Cola and Pepsi are likely to absorb a large part of the cost push."

Over the last few months, cost of sugar (a key raw material in soft drinks) and packaging materials has increased by as much as 25 per cent, he said, adding that the petroleum price increase will be an additional burden.

The Director at Samsung India, Mr Ravinder Zutshi, said an immediate price increase was unlikely. "We do not want to spoil the party for the consumer, but there will be a price hike at some point in the near future. We are yet to figure out the quantum of cost hike the petro price increase will have."

Mr Zutshi's sentiment was echoed by the Managing Director of Marico Industries, Mr Harsh Mariwala, as well as Mother Dairy officials who said that no immediate price hikes were going to be announced.

A Dabur India Ltd spokesperson said that higher transport costs would be absorbed by the company. Dabur India has already announced up to 7 per cent increase in Vatika hair oil prices due to input cost hikes over the last several months.

Godrej Appliances' Executive Vice-President (Marketing and Sales), Mr Soumitra Ghatak, said the company was trying to find new modalities to maintain consumer prices since the company's market operating price has been rising due to inflationary pressures for the last several months.

LG Electronics India Head Marketing, Mr Salil Kapoor, said the company will evaluate the effect of petroleum price increase by the month-end and any price increase would be effective only early next year.

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