Lower oil prices to support consumer staples' margins: Kotak report

Consumer staples firms are set to benefit from falling oil-linked raw material prices, which will support margins despite ongoing inflation in agricultural commodities, according to a Kotak Securities report. Dairy and QSRs may face pressure.

Consumer staples companies are expected to benefit from lower prices of oil-linked raw materials over the next two to three quarters, helping support margins despite continued inflation in agricultural commodities, according to a report by Kotak Securities.

The brokerage said falling prices of crude oil, copra and VAM are likely to ease cost pressures for several companies, while higher agricultural input costs may keep pricing actions active through FY27. It noted that home and personal care companies are continuing calibrated price hikes to offset raw material inflation, while price cuts in categories such as shampoos, tea and biscuits following Goods and Services Tax (GST) changes could support volume growth. Dairy and quick service restaurant companies, however, may face near-term margin pressure due to rising milk prices.

Mixed Commodity Trends

According to the report, raw material trends remain mixed across agricultural and oil-linked commodities. "Wheat and barley prices increased 3 per cent month on month. Liquid milk prices rose 3 per cent month on month and 5 per cent year on year," the report noted. On the other hand, "Brent crude oil prices declined 25 per cent month on month, copra prices fell 10 per cent month on month, coconut oil prices dropped 10 per cent month on month and palm oil prices were down 2 per cent month on month."

Company-Specific Impact

Kotak Securities said the divergence in commodity trends will influence margins across the sector. "A decline in copra prices will benefit Marico, while a decrease in crude and palm oil prices will reduce pressure on margins of Hindustan Unilever, Godrej Consumer Products, Jyothy Labs and paint companies. A decline in VAM prices will aid Pidilite Industries," it said.

Pricing Actions and Hikes

The report highlighted continued pricing actions in the home and personal care segment during June 2026. "For soaps, Hindustan Unilever took price hikes of 3 to 8 per cent, whereas Godrej Consumer Products raised prices by 4 to 5 per cent. For detergent bars, Hindustan Unilever raised prices of select SKUs by 3 to 10 per cent and for detergent powders, prices increased 5 to 8 per cent," it said.

It further added that Hindustan Unilever implemented calibrated price increases in its fabric wash portfolio during the first quarter to offset 8-10 per cent raw material inflation.

Toothpaste makers also increased prices. "For toothpaste, Colgate Palmolive took a 6 per cent hike in select SKUs, while Dabur and Patanjali increased prices by 1 to 4 per cent and 8 per cent respectively," the report said.

GST Impact and Price Cuts

The brokerage also pointed to improving affordability in some categories due to the delayed impact of GST rate cuts. "Among shampoos, Hindustan Unilever's select SKUs saw 27 to 31 per cent price cuts, whereas Procter and Gamble and Patanjali's SKUs saw 7 per cent and 12 per cent price cuts, possibly reflecting a Goods and Services Tax rate cut with a lag," Kotak Securities said.

The report noted similar trends in tea and biscuits. "In tea, select SKUs of Hindustan Unilever and Wagh Bakri saw price cuts of 9 per cent and 6 per cent. In biscuits, price cuts of 4 to 17 per cent were visible, partly due to grammage increases," it said.

Future Outlook

Kotak Securities expects earnings growth in the consumer staples sector to improve as companies balance pricing measures with product innovation and new launches. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)