In HPC prices have been cut in 1) value oriented brands like Sunsilk and Clinic Plus (-8% /-17%), 2) all hair oils segments like Amla, Almond, LHO, Anti-hair fall are either flat to negative except Coconut (PCNO up by >+20% YoY due to +46% copra inflation) and cooling hair oils (Navratna up by +6% YoY due to inflation in Mentha oil and LLP). 3) Colgate has continued with sharp price cuts across SKUs (100/200/300gms) by -7% to -12% for both toothpaste and toothbrushes while competitors like Dabur Red (+15% YoY) and Babool (+3% YoY) have not really cut prices as there volumes are strong. 4) Detergents have seen a price cut of -5% YoY by both HUVR and Jyothy Labs 5) All food, beverages and dairy products have either flat to negative pricing or are giving offers (like curd free with pouch milk).
Overall, we observe pricing in only prevalent in premium categories and brands and there is actual price cut in value and popular categories by all companies. Raw material inflation remains high in 1) vegetable oils (Palm oil up +24% YoY, Copra up +46% YoY, Rice bran up 16% YoY, Mentha oil up 42% YoY, Soyabean oil up 23% YoY), 2) crude linked derivatives like HDPE (+20.6%), LLP (+11.5% YoY) which are primarily used for HPC product.
Despite this, we have seen price cuts across all large categories like soaps, detergents, shampoos, toothpaste, hair oils. F&B and Dairy companies like Nestle, Heritage, Prabhat, Parag, Britannia, TGBL, have benign raw material prices (milk prices down by -15% YoY; cow milk in Maharashtra selling at lower than R20/ltr compared to R23/ltr last quarter and R26/ltr last year, SMP down to R130/kg from R170/Kg last year, sugar down -27% YoY, Coffee down between -7% to -13% YoY, wheat up 4.5% YoY, North Indian tea up by 6.5% YoY) and are expected to benefit. FMCG & Dairy expected to report 14% YoY/+63% YoY growth in profits this quarter led by high volume growth (+11% YoY) on the back of soft base (1QFY18 saw de-stocking due to GST) & input tax credit (200-300bps) for FMCG companies. EBITDA margin for FMCG companies expected to expand by 140bps as a result.