Monday, 6 October 2014

Companies expect good festival sales as sugar, edible oil prices dip

With big cities reeling under high inflation, low industrial growth and an economic ennui, many companies even looked at the rural market for growth.

NEW DELHI: This year's festive season has begun on a promising note for consumers as prices are under check, and even companies selling sweets and fried foods are helped by lower cost of ingredients — edible oil and sugar — to post better sales and improve their profit margins. In recent years, companies have missed out on the pre-Diwali boom due to a slowing economy and considerable dip in demand.

With big cities reeling under high inflation, low industrial growth and an economic ennui, many companies even looked at the rural market for growth. But this year, the sentiment is upbeat.

"This Diwali will be a good one for consumers as oil prices are at a historical low. What was Rs 75 per kg a couple of months ago will cost Rs 55-58 in the coming months. In fact, after Diwali, prices may head further south, perhaps by 5%, due to good domestic harvest and low demand after the festival," said Dinesh Shahra, Dinesh Shahra, MD of Ruchi Soya, a leading cooking oil firm.

Industry executives say low prices will boost demand more than the usual seasonal increase during the festivities. Sales growth may be up 5 percentage points more than the usual 15%-20% growth in the season, according to some estimates. Echoing the sentiment, Adani Wilmar COO Anshu Malik said that it would be a good year for the branded oil segment.

"When commodity prices come down, we're not under pressure to do pricing. We expect margins to improve by 20-30%, depending on how companies price."

Similarly, food companies across the board expect higher sales without actually having to reduce prices of products because of low edible oil and sugar costs even as the economy gets back on track. "Expectations are high this year because of the positive sentiment. We expect festive sales to be certainly better than last year, but I can't put a number to it," said ITC Foods CEO Chittranjan Dar. Sweets and savouries maker Bikanervala Foods also expects better sales because of an economic resurgence.

"We are unable to bring down consumer prices because lower costs of some commodities are being offset by higher cost of others. But unlike in the past, this year we don't expect prices of sweets to go up," said company's MD SS Aggarwal.

The good news is that the bearish trend in edible oils and sugar is likely to continue for a while. According to Triveni Sugars, in the last two years, there's only been an increase in the excess sugar stock in the country. "There's been a dampening of pricing and there's no sign of prices going up in the near future. In fact, there'll be a downward bias, going forward," Triveni Sugars CEO Tarun Sawhney told ET.

Anand Ramanathan who is associate director, Management Consulting at KPMG in India, told ET that cheaper oilseed and sugar prices will help the food processing and FMCG companies improve their margins, which have been under pressure for the past few years as sustained commodity price fluctuations caused supply not being able to keep pace with demand across most categories.

"It is unlikely that these benefits will be passed on to consumers," said Ramanathan. While the new sugar year starting October 2014 will open with a surplus of 2 million tonnes, low oil prices the world over due to bumper harvests will keep edible oil prices low, raising consumption.



Post a Comment