Shares of fast moving consumer goods (FMCG) companies sharply declined on Monday after Indonesia, a major palm oil producer and exporter, announced a ban on the export of the commodity from April 28, primarily to tackle rising prices at home. Palm oil remains a key ingredient in major food processing industries and quick service restaurants.
Analysts believe that the ban on exports will lead to an increase in prices in the domestic market. “Given that palm oil is 60% of the total oil imports, and Indonesia being the second-largest seller, it will push domestic prices up in coming months. FMCG staples majors such as Britannia, Hindustan Unilever, Nestle India and ITC would be among the key companies affected directly as a result of the ban and higher prices,” Amnish Aggarwal, director – research, Prabhudas Lilladher, wrote in a note on Monday.
Following the announcement, shares of Britannia Industries plunged 6.3% intra-day on Monday, while Hindustan Unilever, ITC, and Nestle India fell 3.8%, 3.4%, and 2.17%, respectively. On the contrary, shares of leading edible oil manufacturer Adani Wilmar surged 5% and hit a new high of Rs 764.60.
With India being the largest importer of palm oil, the announcement of the ban will affect the country the most, said analysts. Of overall edible oil imports, palm oil accounts for nearly 60-65%, Prabhudas Lilladher said in the note. The brokerage expects margins to be impacted in the upcoming quarter.
gWe believe increase in prices of palm oil will further impact the margins in 1QFY23. We expect margins to bottom out in 1HFY23 given inflation across inputs. We don’t rule out further cut in margins in 1H23. We expect weak-to-sideways movement for select consumer stocks in the near term,” said Prabhudas Lilladher.