You may have to shell out more for your morning coffee and noodles

• FMCG majors Hindustan Unilever and Nestle have reportedly announced a price hike on a range of daily essential products.
• This comes at a time when the country is facing high inflation rates across sectors.
• Price hike by consumer goods giants amid inflation pressures and weak rural demand speaks a lot about the challenging environment for the sector.

Two of the biggest fast moving consumer goods (FMCG) companies have increased prices of a range of products including tea, coffee, milk and noodles. This means your morning coffee, snacks or rather breakfast would cost you more from now on.

CNBC-TV18 reported that Hindustan Unilever (HUL) and Nestle have announced a price hike on these products. HUL has hiked Bru coffee powder prices by 3-7% across packs citing significant inflationary pressures.

Nestle India has reportedly hiked the price of its popular instant noodles brand Maggi by 9-12%, which turns out to be an increase in Maggi Masala Noodles’ 70 gram pack to ₹14 from ₹12 currently. The FMCG major has also increased the price of 1 litre milk carton by 4% to ₹78 from ₹75 currently.

This comes at a time when the country is facing high inflation rates across sectors because of high crude oil prices and other raw materials.

In fact, the household budget of an average household has gone up significantly in the last few months because of the soaring inflation that has led to constant increases in prices of commodities like biscuits, soaps, shampoo, oil, milk and now on coffee and Maggi.

While inflation was a real problem for the country even before, major macro concerns hit the country a few weeks back. Inflation has shot up because the country is struggling to get enough supply of commodities due to a full-blown war between the two of the biggest producers (Russia and Ukraine) of these commodities. So naturally, less supply and high demand is likely to increase the price of such products.

This has led to weak rural demand and hence lower profits for the FMCG brands like HUL, Marico, Nestle and so on. Adding to it analysts have also downgraded their rating on FMCG stocks due to this.

“We have been underweight on the (FMCG) sector since early 2020; the sector has underperformed in the last two years, with mild de-rating in progress. Despite the correction, we do not see room for any valuation upsides; rather, we expect more valuation risks in the next few years,” said analysts at HDFC Securities in a report dated March 10.

The brokerage firm has also cut its multiples for FMCG companies – HUL, Nestle, Britannia and Emami – with a “reduce” rating.

Shares of several FMCG companies have given poor returns in 2022 so far.

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