FMCG-Raise Price To Hold Margins; But Costs Are Rising Faster; No Denying Year-End Global Rally

Price hikes continued in Feb '11, with increase in prices of major raw materials. Given the rising crude oil prices, we expect raw materials prices to inch up further. Kraft-Cadbury introduced Oreo biscuits, intensifying competition in the biscuits segment. Also, Colgate introduced Colgate Total Professional.

n       Raw material prices. Most raw material prices went up in Feb'11. Prices of most crude-oil derivatives were up, affecting personal-care product companies. Lower prices of wheat and sugar would aid food companies. Higher prices of copra and safflower oil would affect Marico the most.

n       Notable launches. Notable launches were Colgate Total Professional. Cadbury/Kraft introduced Oreo biscuits in India. It also introduced an SKU at `5. Nestlé India extended its Pazzta range by introducing Maggi Tomato Pazzta. Looking to the summer ahead, HUL re-launched its Ponds Dreamflower Talc.

n       Pricing actions. Price hikes continued in Feb'11 as well. Marico raised prices of Parachute and Saffola. Consequent on higher milk prices, Nestlé hiked prices of Dahi, by 7%. However, on the reduced excise duty, P&G cut prices of Whisper and Pampers, by 15%. Dabur increased freebies on Vatika shampoos and is offering 40% highergrammage.

n       Stock calls. We maintain a Buy on ITC, Nestlé India, Asian Paints, Colgate, GCP, Marico, GSK-CH and Emami, and a Hold on Dabur. We recommend a Sell on HUL and Britannia. Of the mid-caps, we recommend a Buy on Agro Tech, Zydus Wellness and VST Industries, and a Hold on Bajaj Corp and Jyothy Labs.

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.