FMCG sector headed for volume growth

According to Adi Godrej, FMCG prices will be margin acrretive on a QoQ basis. He says that the price hike is due to a combination of high demand and raw material prices. "Clearly, some raw materials are moving up after crude oil prices have risen quite a lot during the last 12 months.

"It has affected some products, which are based on petrochemicals. It has affected prices of vegetable oil because a lot of vegetable oil is now going into bio-fuel consumption," he adds.

Godrej says that there has been a little bit of cost-push, which is leading to price pushes. He forecasts the industry's volume growth at 15 per cent in FY07 versus 10 per cent in FY06. "I expect that volume growth this financial year will be around 15 per cent against 10 per cent last year."

"So that means if the demand is good, it is easier to increase prices. I think that the FMCG sector is taking price increases because it is good for the sector," he adds.

Adi Godrej expects volume growth to continue very strongly. "I expect both sales growth and profit growth in the FMCG sector to be good. This is mainly predicated on the very healthy growth in the Indian economy."

Nikhil Vora agrees with Godrej's logic. He says that most of the industry players seem to be playing in tandem. "This means that there is a some sort of a pseudo cartelisation, which is happening in the system."