How do you see the call by the government asking edible oil manufacturers to reduce retail price? It is positive for consumers because when edible oil prices fell, the companies did not pass on the same benefit. Will it be good for the FMCG companies?
This is very positive for many FMCG companies and of course the consumers. We see margin expansion for many companies like HUL, Britannia, GCPL, Nestle, in the second half because palm oil is used in soaps, biscuit, noodles etc. When FMCG companies see margin expansion, they do not pass on price cuts.
Yes, companies might increase grammage, offer some promotion and that will help the volume growth that is getting reported. So, this has a double benefit margin expansion and volume growth will accelerate. Also, the monsoon has been quite decent till now and the deficit has gone away. That will also propel the rural demand in the second half. For the edible oil companies, there could be some negative impact because there will be price deflation and their sales growth will become negative because of it.
What happens to companies like Adani Wilmar and Patanjali Food? A large part of their profitability is from FMCG business and less from edible oils?
I can comment on Adani Wilmar because we cover that. In Q1, Adani Wilmar got impacted because of the Indonesia regulations which came in palm oil and then Ukraine had a big impact because Ukraine is a big exporter of Sunflower oil.
My sense is Adani Wilmar will see significant improvement in volumes because now a lot of these geopolitical issues are getting resolved. Indonesia is resolved and there are other sources of edible oil plus the shift of consumers from some of the pricier brands to regional brands to unbranded.
That will come to an end because consumers will go for quality. I would say that Adani Wilmar will clearly gain. Adani Wilmar is doing quite well in food. They recently acquired a rice brand and we are quite positive on Adani Wilmar from a medium- and longer-term perspective and Q2 should be much better than the Q1.
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