Cooking oil prices drop - soaps, noodles and detergents might follow suit

• Earlier this week, the government reduced the base import prices of crude palm oil and soy oil.
• Following this, edible oil companies have slashed prices of cooking oil.
• Additionally, prices of household products like soaps, biscuits, noodles and even shampoo, lipsticks and detergents will also fall as palm oil is one basic ingredient here.

One of India’s top FMCG companies, Adani Wilmar reduced the prices of one of the priciest of groceries in recent times – cooking oil.

"We are passing on the benefit of the reduced cost to our customers. We are confident the lower prices will also boost demand," said Angshu Mallick, MD and CEO at Adani Wilmar after reducing the price of Fortune refined Sunflower oil's one-litre pack by ₹10 to ₹210.

This comes after Hyderabad-based Gemini Edibles & Fats and Mother Dairy both cut prices of cooking oil by ₹15 on one-litre pack – bringing relief to this household essential which has been on the receiving end of inflation for months now.

This sentiment could spread across more packaged products, by more FMCG majors.

“We expect consumer and retail companies to pause taking further price increases though sector valuations appear rich, with improving out‐of‐home consumption,” said a report by Centrum Broking firm.

In the last few months as input costs rose, FMCG players have been resorting to reducing pack sizes while increasing pack prices. A reduction in base import of crude palm oil, soy oil could be passed on to other products in which it is used like — soaps, biscuits, noodles and even shampoo, lipsticks and detergents.

It would mean a sharp reduction in household grocery bills, which have only been on the rise for consumers.

Normal monsoon can aid the sector to remain green
Lower prices would also mean the tapering demand for packaged products would also improve. Also, there are expectations that rural demand may recover on the back of higher government spending and normal monsoon.

Rural demand has been hit after consumers traded down to cheaper and smaller packets after inflation hit their doorsteps much harder than it did for urban consumers. If and when consumers shift to smaller pack sizes, most FMCG players tend to lose market share to local and regional players who cater more variety at those price points.

However, if pack prices improve, FMCG majors’ volumes will improve – which have been losing revenue for the last eight months.

Rural economy is key for FMCG players as a cool off in agricultural commodities inflation will also help reduce their own costs and improve margins.

“If commodity prices witness correction from the current level, margins of consumer goods companies might witness a sequential improvement from Q3 FY2023. Commentary of most consumer goods companies suggests recovery in sales volume from Q2/Q3 of FY2023, if the inflation environment stabilizes in the coming months,” said analysts at Sharekhan.

An FMCG bull run
The optimism around the sector picking up soon is reflected in companies share prices as well. In a weak market sentiment, shares of FMCG players were among the biggest gainers as their fortunes will improve irrespective of worries about global interest rates and a possible recession in the US.

“We are very bullish on the FMCG sector from here because we believe costs are coming down from previous highs and they are in a position to pass on incremental costs to consumers, which will help to increase these companies' margins,” said Ravi Singhal, vice chairman at GCL Securities.

An FMCG bull run in a market would actually buck the trend of an overall lack of enthusiasm in stocks — proving the theory that no matter what happens, people will keep buying essentials albeit at the right price.

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