Commodity rates and their Margin influence:
Increased rates of HDPE (packaging), palm oil and palm oil derivatives are probably to place stress on margins of Home and Personal care (HPC) firms. For meals firms, deflation in wheat and Skim Milk Powder (SMP) rates is helpful. But, the rise in Palm oil rates will build an adverse influence. Paint firms will continue to advantage from benign crude oil rates.
SMP and Wheat rates have dropped by about 17% and 18% considering that final year respectively. It is anticipated to advantage Nestle’s gross margins through the December quarter. However, its positive influence is probably to be restricted due to the surge in palm oil (up 35% YoY) and coffee rates (up 5% YoY). Nestle is anticipated to post a gross margin expansion of about one hundred-150bps YoY.
Palm Fatty Acid Distillate (PFAD) witnessed sharp inflation due to the 35% YoY raise in palm oil rates. PFAD is a important ingredient in Soap and beauty goods suppliers like HUL and GCPL. Along with PFAD, High-Density Polyethylene (HDPE)’s rates also enhanced by about 15% YoY. It is a important packaging raw material that is probably to place stress on margins for HUL and GCPL.
The firms have raised soap rates by about 5-6% in December 2020. But, it seems to be as well late to mitigate the influence of increasing raw material rates. HUL is probably to witness a gross margin contraction of about 150-200bps YoY. For GCPL, margin contraction could be in the variety of 50-100bps YoY.
Copra rates have observed a sharp surge of 14% through the quarter. It is a important ingredient for Marico’s flagship item Parachute coconut oil. Due to the availability of low-price inventory, Marico is probably to stay away from its adverse influence in the December quarter. However, the inflated Copra price tag could commence playing its influence in the subsequent quarter.