Biscuits, ghee and hair oil to get cheaper after government duty cut — but after three months
- The government of India has decided to allow duty-free import of crude soybean oil and sunflower oil.
- The country had also limited basic import tax on crude oil, capped sugar export and banned wheat export.
- Indian FMCG players have gone through several rounds of price hikes across several products over the last two years.
AdvertisementThe Indian government’s decision to allow duty-free import of crude soybean oil and sunflower oil, coupled with limiting of the basic import tax on crude palm oil to 10%, will bring cheer to the inflation-hit consumers as well as FMCG players.
According to the analysts Business Insider spoke with, the current relaxations are going to bring down the cost of goods like — cooking oils, food items and even cosmetics. FMCG companies will have to pay much less for their raw material like sunflower and palm oil which goes into these products.
The benefits of this reduction will be accrued in the next three months, Suman Jagdev, partner at Praxis Global Alliance told Business Insider India. He noted that the companies importing these edible oils will have to pay less, and the perk would be transferred to customers.
“Because of its low domestic oilseed production, India imports about 55-60% of its annual edible oil consumption,” Jagdev elaborated,” Jagdev explained.
Biscuits, ghee, hair oil, coconut oil to get cheaper
Vinit Bolinjkar, head of research at Ventura Securities, also said that the price of edible oils should go down in the short term. Besides this, the price of food items like biscuits, ghee, hair oil, coconut oil would also see a reduction with the latest move.
“The move is aimed to bring down the prices of edible oil in the domestic market and curtail inflation. We believe that domestic margins will pass through the decreased cost to consumers and still be able to protect their margins barring some minor basis point cut. Overall, the move should help organized players as they will again become at par with local players in terms of pricing,” Bolinjkar added.
Why is this a positive sign?
Indian FMCG players — including Nestle India, Marico, Hindustan Unilever, Ruchi Soya, Britannia, Dabur, Colgate Palmolive, Emami, Tata Consumer Products, Wipro Consumer Care — have hiked prices several times across several products over the last two years.
The price hike was taken up due to several reasons including supply chain disruption due to Covid-19; and then the Russia-Ukraine war as well as inflationary pressure due to both the events that increased input costs.
AdvertisementThe price of raw material — food items and even crude oil increased — and reduced the margins of all the big FMCG players. The CEO of Nestle India, Suresh Narayanan, in an interview with CNBC in November 2021 pointed out that nine out of the 13 key ingredients that it buys from the market have not been this expensive in nearly a decade.
The Government of India capped sugar exports and banned wheat exports too. All these factors would benefit FMCG companies like Adani Wilmar, Marico and others, both Jagdev of Praxis Global Alliance and Bolinjkar of Ventura Securities agree.
“While the move may hamper the profits of edible oil companies in the short run, we are particularly bullish on Adani Wilmar who is the largest edible oil player. It is now diversifying into other food categories and hence we believe that one can keep on accumulating the stock in his portfolio but in a staggered manner,” Bolinjkar of Ventura Securities added.
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