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Emami halts price increases as menthol cools

Monday, 19 November 2012 - 3:00am IST | Place: Kolkata | Agency: DNA
The decision follows cooling of menthol prices, which accounts for 20% of raw material costs for Emami. After rising 50% year-on-year during the quarter, menthol prices are seen stabilising at the current levels.

FMCG player Emami Ltd won't take price hikes for its personal care products for the rest of the year following stability in raw material costs.

"Price hikes have already been taken for this year. There wouldn't be any hikes this year," Emami director Mohan Goenka said on the September quarter earnings call.

The decision follows cooling of menthol prices, which accounts for 20% of raw material costs for Emami, he said. After rising 50% year-on-year during the quarter, menthol prices are seen stabilising at the current levels.

"The average menthol price during the quarter was Rs1,900 a tonne against the current price of Rs1,500. We see benefits from the fourth quarter," Goenka said.

Menthol has been a major headache for Emami with prices going up from a low of Rs700 a tonne in March 2010 to a peak of Rs2,700 in January 2012.

Lower menthol prices mean improved gross margins, which during the reporting quarter grew 50 bps to 58.6%.

Goenka is bullish about sales in winter, the most important season for Emami. "Winter has set in most parts of North India. We are hopeful we would be able to deliver good numbers. But this is an initial period and we have to watch how the season pans out after Diwali."

Sales of antiseptic creams and petroleum jelly are likely to be robust, helping brands like Boroplus and Vasocare.

A positive for Emami, as well as other consumer goods firms, would be the likely improvement in sales to the army's canteen stores department. "We have got the positive sign as CSDs have got more funds compared with the earlier two quarters," Goenka said. CSDs contribute 4% to Emami's sales.

Overseas business, which grew 3% during the quarter, would continue to drag. "The problems in the CIS [Confederation of Independent States, the former Soviet Union] countries are still not resolved and the international team has revised their targets for the year. I don't see a positive result from CIS even in this quarter."

CIS markets account for 75% of Emami's overseas sales, which contribute 13% to total revenue.

Growth came only from the SAARC region, particularly Bangladesh, which grew 60% during the quarter.

Going forward, Emami will not launch too many products. "Even for the first half, we focused on existing products, which grew faster than new ones,” Goenka said.

Emami would spend Rs50-60 crore on its plant in Egypt and one in North India in the next fiscal.


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