Fast moving consumer goods majors like Britannia, ITC and Parle Products are mulling price hikes and cost-cutting measures on the back of a weak monsoon season, coupled with soaring sugar prices.
Sugar is a key input for many of these companies and, since January this year, sugar prices have risen by over 40 per cent. In fact, there is further scope for increase with the weak monsoons.
Further, imports too will be costlier this year despite being duty free, as international prices of sugar have reached a 28-year high because of heavy import demands from India and Mexico and lower harvesting in the top sugar-growing country Brazil.
Terming the unrelenting price of sugar as 'pretty frightening', ITC Foods CEO Chitranjan Dhar said: "The focus is on greater control and running cost-cutting measures, as we will not pass on the full increase in sugar prices to the consumer.
The price increases would be between 3 and 6 per cent in the long term. However, we yet have to take a decision on effecting the same."
Likewise, for Britannia -- the maker of Tiger Biscuits and Little Hearts -- sugar accounts for 12-20 per cent of its overall input costs.
"The steep jump of more than 50 per cent in sugar prices in a year is a concern," a company spokesperson said, adding that the company would look at offsetting the increase partially at least with its cost-reduction objective and programme, which spans across the entire value chain.
In the case of Parle Products, sugar accounts for 15-20 per cent of overall input costs. "It is very difficult to say what we would do. We will watch the market for a month before effecting any change in prices," Parle Products financial controller Atul Nath said.
His company has biscuits like Parle G and Krackjack and confectionaries like Poppins and Mango Bite.
"The profitability of companies where sugar is a key input (beverages, biscuits and confectionaries) will be severely impacted," Angel Broking analyst Anand Shah said.
"Further, as inflation is low, companies may not be able to effect an immediate price hike but would probably look at grammage (weight) reduction and take cost-cutting measures like reduction in advertising spends," he added.
