Rising crude oil prices amid escalating tensions in the Middle East could push several fast-moving consumer goods (FMCG) companies to raise prices in order to protect margins, according to a report by global brokerage CLSA.
The report notes that crude oil and its derivatives form a significant part of the cost structure for consumer goods companies impacting manufacturing, packaging and logistics. As a result, any sustained rise in oil prices could translate into price hikes across several FMCG categories.
Among the companies that may require the largest price increases are Asian Paints, Hindustan Unilever, Godrej Consumer Products, Varun Beverages and Britannia Industries.
ALSO READ | Stars Finally Aligning For India's FMCG Story, Says Goldman Sachs — Check Stock Picks
In contrast, companies such as Colgate-Palmolive (India), Nestle India, ITC Limited, United Spirits and Radico Khaitan are expected to be relatively less affected.
Price Hikes Could Rise Sharply With Crude
According to CLSA's estimates, the scale of price increases required will depend largely on how high Brent crude prices move.
Price Hikes Based On Crude Price
| $80/barrel | 0.8-6.4% |
| $90/barrel | 1.0-11% |
| $100/barrel | 2.0-16% |
If Brent remains around $80 per barrel, FMCG companies may need to raise prices by 0.8%- 6.4%.
If Brent rises to $90, price hikes could increase to 1%-11%.
If Brent touches $100, companies may require 2%-16% price increases to offset higher costs.
Why Crude Matters For FMCG?
Crude oil derivatives form a key part of the FMCG industry's cost ecosystem. Overall, 20-25% of the input costs for FMCG companies is linked to crude oil derivatives, according to the analysts.
Packaging materials alone account for 10-15% of raw material costs for consumer goods companies. Common crude-based materials used include:
HDPE (High-Density Polyethylene), LDPE (Low-Density Polyethylene and PET (Polyethylene Terephthalate)
used in shampoo bottles, edible oil containers and detergent packaging.Polypropylene and polyethylene films used in snack packets, sachets and plastic caps.
ALSO READ | India's Quick-Help Boom Creates Two Leaders: Urban Company And Snabbit
Crude derivatives are also used directly in product manufacturing. One of the most important ingredients is Linear Alkyl Benzene (LAB), a key raw material used in detergents and soaps. LAB alone accounts for more than half of the raw material cost in detergents.
Higher crude prices also affect FMCG companies through transportation and distribution expenses.
Crude oil drives diesel and fuel prices, which in turn increases trucking, shipping and last-mile distribution costs. Freight and logistics typically account for 3-7% of sales for FMCG companies.
The eventual price action by companies will depend on how the geopolitical situation in the Middle East evolves and whether crude oil prices remain elevated for an extended period. If oil prices remain high, companies may have little choice but to pass on some of the cost pressures to consumers through price hikes across product categories.
Price hikes required in FY27 to offset impact of crude oil
| Company most affected by crude oil prices | Brent stays at US$80 | Brent at US$90 | Brent at US$100 |
| Asian Paints | 6.4% | 10.9% | 15.8% |
| Hindustan Unilever | 5% | 8.5% | 12.2% |
| Godrej Consumers | 4.4% | 7.4% | 10.7% |
| Varun Beverages | 4.2% | 7.2% | 10.3% |
| Britannia | 4.2% | 7.1% | 10.2% |
| Companies least affected by crude oil prices | |||
| Colgate | 2.8% | 4.7% | 6.8% |
| Nestle India | 1.7% | 2.9% | 4.2% |
| United Spirits | 1.3% | 2.2% | 3.2% |
| ITC | 1.1% | 1.9% | 2.7% |
| Radico Khaitan | 0.8% | 1.3% | 1.8% |
Source: CLSA, Company data
ALSO READ | Trouble Fermenting For Sula: FTA With EU Set To Shake Up India's Wine Market
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
