Festive boost for FMCG? Britannia, HUL, AWL Agri, Patanjali Foods in focus after oil duty cut

FMCG and edible oil shares could be in focus on Thursday, September 24, after the government cut basic customs duty (BCD) on crude and refined palm, soybean, and sunflower oils, a move that could ease input-cost pressures for packaged food and consumer goods companies ahead of the festive season.

The BCD on crude sunflower oil has been reduced to nil from 10%, while the duty on refined sunflower oil has been cut to 22.5% from 32.5%. For crude soybean and palm oil, the duty has been lowered to 5% from 10%, while the BCD on refined varieties has been reduced to 27.5% from 32.5%. The changes are effective from September 24.

The duty reduction could benefit edible-oil companies such as AWL Agri Business, Godrej Agrovet and Patanjali Foods through lower import costs, while FMCG players including Britannia Industries, HUL, Marico, Nestlé India, Bikaji Foods, Godrej Consumer Products, Dabur India and Jyothy Labs could see some relief in raw-material costs.

Lower edible-oil prices could also support consumption and volumes during the upcoming festive season, although the extent of margin benefit will depend on how much of the cost reduction is passed on to consumers.

Details to know

For edible-oil companies such as AWL Agri Business, Godrej Agrovet, and Patanjali Foods, the duty reduction could lower the landed cost of imported crude palm, soybean and sunflower oil, potentially providing some margin relief or allowing companies to pass on the benefit through lower consumer prices.

For FMCG and food companies, the duty cut could provide some relief on raw-material costs, as edible oils such as palm, soybean and sunflower oil are widely used in products including biscuits, snacks, packaged foods and other consumer goods.

Companies such as Britannia Industries, Bikaji Foods, HUL, Nestlé India, Marico, Dabur India, Godrej Consumer Products and Jyothy Labs could therefore see some easing in input-cost pressure, potentially supporting margins or volumes if part of the benefit is passed on to consumers.

The impact, however, will vary depending on each company's product mix and the extent to which lower input costs are retained or passed through.

What the IVPA said

Sudhakar Desai, President, Indian Vegetable Oil Producers’ Association (IVPA), said the government’s decision to reduce customs duties on specific edible-oil imports comes at an important juncture, particularly with the festive season approaching.

Lower import duties should improve the landed costs of imported edible oils, which can provide some reduction in consumer prices.

For the edible-oil sector, the immediate priority is to ensure adequate availability across the country during the upcoming festival months, with higher household demand as well as increased requirements from the sweets, snacks, food-service and HORECA segments.

The revised duty structure is also significant from the point of view of demand shifts. The sunflower oil duty cut has been steeper, making sunflower oil more affordable, especially in major consuming region of South India.

Key facts

India remains dependent on imports to meet a substantial portion of its edible-oil requirement, making the domestic market sensitive to international edible-oil prices and global supply conditions. Greater flexibility to import sunflower oil and soybean oil will shift demand away from palm oil, which is expected to be relatively expensive due to implementation B50 bio fuel mandates and cut down of the acreage expansion.

“Industry, especially in the north and north east, has been reeling under the pressure of zero-duty imports from Nepal due to duty arbitrage with Indian duties, which will continue as Nepal goods will still be more competitive compared to domestically refined oils,” Desai said.

“We at IVPA have been demanding an import quota on zero-duty imports from SAFTA countries,” Desai added.