Adani Wilmar in the driving seat
FMCG industry will face a supply crunch, this will create a burn in your pockets. With majority of FMCG companies looking to pass on the cost to its consumers, one will emerge more profitable.
With FMCG index is barely moving and benchmark indices lowering the weight on the sector, clearly something is off.
In Q4-FY2021-22, value of consumer goods grew by just 4.8%, that is roughly 1/5th of the average growth rate in the first three quarters.
The reason behind this?
In short, Inflation!
Rising cost of basic commodities due to hike in crude oil and lack of supply of other input raw materials essential to the FMCG industry.
What happens when supply comes down? the prices go up.
To sustain this impact FMCG companies have to pass on the cost to the consumers, increasing the price by roughly about 4-12%.
We definitely know what happens when prices go up? demand falls.
As a result, consumers have become more conscious about what they spend on, shrinking their spending habits. In fact, average monthly sales per kirana store declined by 10%.
On April 28
Palm Oil being one of the most essential ingredients in your soaps, cookies, even your Nutella. 70% of India’s palm oil import is from Indonesia and they have currently banned exports to put their interests first.
Majority of FMCG industry will run out of stock, but not Adani Wilmar Limited.
Their major focus is on edible oil which contributes to 80% of their revenue and they have ensured that they are well stocked up on raw material. It doesn’t stop there, the JV between Adani and Wilmar ( among the largest producers of palm oil in the world) has put them in the driving seat.
So, Adani Wilmar can make a ‘Fortune’ in two ways.
1/ Let the other players in the market drive prices up and enjoy better margins until Indonesia opens again
2/ Unlock another revenue stream by selling palm oil to its peers
What do you think will happen next?