The reduction in import duty on edible oils, including palm, soya and Sunflower, is going to help fast moving consumer goods companies improve their margins and stabilise their input costs, according to experts.
Palm Oil, which the FMCG companies use as a key ingredient for the manufacturing of soaps and even food products, will also help cool down consumer monthly inflation, experts said.
The move will not only benefit the food companies, for which palm oil is almost 25–30% of their raw material costs but also lower Palm Fatty Acid Distillate prices, a byproduct used by soap makers.
According to Mayank Shah, vice president of Parle Products, this reduction would not have any impact on consumer prices but would help in maintaining prices.
In the March quarter, FMCG companies hiked rates due to a rise in palm oil prices. However, they have not passed the entire burden on to consumers, anticipating volume loss.
"Now, with the reduction, the best scenario that we expect is that there won't be any price hike that would happen and going forward, I think, it would also keep inflation in check," Shah told PTI.
When the last price hike was done, it was not enough to mitigate the entire increase in input cost. It was done to only partly take care of the increase in input cost, and companies took a bite on their bottom line, he added.
Last week, in a bid to bring down food prices, the government lowered the basic import tax on crude edible oils by 10 per cent. The duty cut is effective May 31, 2025, onward.
Godrej Consumer Products Ltd, which owns soap brands like Cinthol and Godrej No. 1, termed this a positive step, which will allow them to stabilise input costs.
"The government's decision to reduce import duty on palm oil is a positive step. This move, along with the early signs of global palm oil price softening, will help stabilise input costs," said Krishna Khatwani, Head of Sales (India) GCPL.
The Godrej group FMCG arm further said this development allows it to "maintain a balanced approach between volumes and margins".
According to a report from Nuvama Institutional Equities, the 10% duty cut "will cool down consumer monthly inflation and lower the cost of food companies".
FMCG companies operating in food verticals like Bikaji Foods, Britannia, Nestle and ITC, will be Key beneficiaries. HUL and Godrej Consumer will also benefit if palm oil derivatives like PFAD cool down.
In the March quarter, the gross margin of FMCG companies was under pressure due to inflation in palm oil, tea, coffee, and copra, according to Nuvama's report.
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