Sugar prices have emerged as a fresh margin risk for India's packaged food companies, with Goldman Sachs flagging Britannia Industries as the most exposed among the consumer stocks it tracks. The brokerage said the sharp rise in sugar prices could put pressure on margins, particularly for companies with high sugar and palm oil exposure and a large share of low-price-point products.
Retail sugar prices have climbed sharply, rising from an average of around Rs 50/kg in January to Rs 58/kg in August, according to Goldman Sachs. Retail prices were up around 42% from last year's average, 28% from the previous month's average and 43% year-to-date as of August 25.
The brokerage said Britannia faces the highest impact because biscuits account for roughly 75% of its revenue, while sugar and palm oil together form a significant portion of biscuit input costs. Sugar contributes around 15-16% of costs, while palm oil contributes about 20%.
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The brokerage estimates Britannia would need a 3.5% price hike to offset around 40% sugar-price inflation. It remains Neutral on the stock. However, Goldman Sachs said the company could remain vulnerable given competitive intensity and the difficulty of passing on higher input costs.
Nestle India and Varun Beverages are relatively better positioned. Nestle's input costs comprise around 6-7% sugar and 10% palm oil, but its pricing power across several categories could help mitigate the impact.
For Varun Beverages, around 10% of raw material costs come from sugar. Goldman Sachs noted that the company has been actively shifting towards no-sugar and low-sugar products, helping offset a significant portion of sugar-price inflation. The brokerage maintained its ratings and targets on all three stocks, with Britannia at Rs 6,000, Nestle India at Rs 1,575 and Varun Beverages at Rs 550.
The sugar-price spike comes even as the government has allowed 1 million tonnes of duty-free sugar imports, which has helped prices correct from their peak.
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