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Godrej ups soap prices to offset higher costs

business Updated: Feb 05, 2014 00:50 IST
Nachiket Kelkar
Nachiket Kelkar
Hindustan Times
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Godrej Consumer Products has hiked prices across its soaps portfolio by 3-4% to offset a rise in cost of raw materials.

At the same time, the maker of Cinthol soap is rolling out in-house initiatives to cut costs as the economic slowdown puts pressure on sales across the consumer goods sector.

The depreciation of the rupee and the rise in price of raw materials like palm oil and crude oil-linked inputs are putting pressure on companies’ margins.

Most fast-moving consumer goods (FMCG) companies in India had also hiked prices last September to offset the rupee depreciation and analysts expect a further round of price hikes.

“There is some pressure on raw material costs due to the rupee depreciation and increase in prices of crude oil-linked derivatives. We raised price of our soaps in January…We are taking calibrated price increases,” Vivek Gambhir, managing director, Godrej Consumer Products, told HT.

Godrej Consumer’s consolidated net profit rose 14% year-on-year to R196 crore in the third quarter. But gross profit margins declined over 100 (basis points) bps. The consolidated sales growth of 17% was also lower than the 23% growth reported in the second quarter and 26% a year ago.

Gambhir said that the environment was challenging and the FMCG industry had witnessed a significant slowdown due to multiple quarters of deceleration of growth domestic product (GDP) growth and high food inflation, which had hurt consumer sentiment.

While the company maintains its sales growth has been better than the overall FMCG sector, the slower growth it seems will likely continue for some time.

“A recovery doesn’t happen overnight. Apart from the economic slowdown, there is election uncertainty ahead of us,” Gambhir said.

Brokerage Sharekhan too expects the company’s near-term earnings growth would remain under stress due to slowing consumption and commodity cost pressures.