India’s Largest Soap Maker Stands To Gain Most From Cheaper Raw Materials
Hindustan Unilever Ltd., India’s largest manufacturer of soaps, is poised to benefit the most from the reduced cost of raw materials, boosting its margin in a competitive market.
Prices of key raw materials, including crude palm oil and palm fatty acid distillate, have declined by over 15 percent each so far this year due to higher inventory and slower growth in demand. While crude palm oil futures fell nearly 17 percent year-to-date to Rs 31,206 per metric tonne, prices of palm fatty acid declined 42 percent to Rs 22,789 per metric tonne during the period, according to Bloomberg.
That may come as relief for soap makers which had to increase prices last month. The recent price hikes were seen to aid margin expansion, Axis Capital said in a report. The brokerage said prices of Hindustan Unilever brands—including Lifebuoy, Liril and Lux—were hiked between two to six percent in November.
Rival Godrej Consumer Products Ltd., too, ramped up prices, according to the report. A 375-gram pack of Cinthol Confidence has turned dearer by nearly 4.7 percent year-to-date.
Amnish Aggarwal, research analyst (FMCG) at Prabhudas Lilladher, said that the deflationary impact of falling palm fatty acid distillate prices will result in easing margin pressures on fast-moving consumer goods companies as they may pass their benefit through by increasing the grammage of soaps.
Shares of Hindustan Unilever have risen 34.45 percent this year, followed by Godrej Consumer at 16.44 percent and ITC Ltd. at 4.86 percent. The Nifty FMCG Index, in comparison, has grown 12 percent.
Soaps come under the ‘Personal Care’ segment—a mainstay for many fast-moving consumer goods companies. The segment contributes nearly half of Hindustan Unilever’s revenue. For ITC and Godrej Consumer, the contribution is 9 percent and 18 percent, respectively.
Companies like Marico Ltd., which manufactures coconut-based hair oils, are expected to benefit from falling prices of copra—a key raw material. The raw material has declined by nearly 24 percent this year, according to Bloomberg.