Paying more for that pack of toilet soap? While retail prices may still stay put, companies manufacturing soaps and detergents should get a slight respite on the cost front.
Import duties on industrial fatty acids and oleochemicals used in their manufacture have been cut to 7.5 per cent from the 30 per cent earlier. Among the leaders in the category are Hindustan Unilever, Godrej Consumer, ITC, and Jyothy Laboratories. The companies shell out between 20 and 35 per cent of raw materials consumed towards oils and fats. While this entire requirement is not imported, lower customs duties can help offset the effect of a weak rupee on the input bill. Of the total raw material consumed, less than 15 per cent is imported.
In the past two months, HUL and Godrej Consumer have already either rolled back promotions and other discounts, or hiked prices owing to higher input costs in the soaps and detergent segment. Both HUL and Jyothy Labs managed to increase operating margin by one percentage point to 17.4 and 14.3 per cent for the December 2013 quarter. Given that companies enter into long- term contracts for inputs, duty savings on inputs may not take immediate effect. But lower costs can certainly prop up profit margins, or be channelled into media spends given the severe competition in the category.