A report states that to offset the cost pressure, FMCG companies might have to take high single-digit to low double-digit price increases
Emphasising that crude and its derivatives constitute a significant portion of raw material costs, a report has stated that if crude oil prices climb to the USD 100 to 130 per barrel range, a 100 to 250 basis points impact on gross margins for most beauty and personal care (BPC) and fast-moving consumer goods (FMCG) players is expected.
The report by Choice Institutional Equities noted that in order to offset the cost pressure, FMCG companies might have to take high single-digit to low double-digit price increases. However, this would eventually lead to near-term volume pressure on the sector, reversing the volume recovery trend of the last one to two quarters.
“Sustained volatility in crude prices could create pressure on gross margins across the FMCG sector. Crude and its derivatives constitute a significant portion of raw material costs, particularly for BPC companies (30 to 40 per cent of the raw material basket). In contrast, food FMCG companies have relatively lower exposure, with crude derivatives accounting for only 10 to 15 per cent of total raw material costs,” the report stated.
The report pointed out that the impact on food-focused FMCG companies is expected to remain limited, as their key raw material exposure is palm oil, which has remained relatively stable. “Given the ongoing volatility in crude markets, we continue to closely monitor the situation to assess the broader implications for the FMCG sector, particularly in terms of pricing actions and demand environment,” it added.
