Few FMCG companies to benefit if raw material prices remain low: Deven Choksey

In a chat with ET Now, Deven Choksey, MD, KR Choksey Securities, shares his views on FMCG companies. Excerpts:

ET Now: Globally, not only oil prices but palm oil and other important basic oil derivate prices have come down which will augur well for FMCG industry because the FMCG industry is indeed dependent on some of these key ingredients. Do you think we could be in for a big earnings surprise from some of these FMCG companies given what has happened to global palm oil prices?

Deven Choksey: For sure, it is a good point and certainly, it makes a case for higher amount of margins or healthy margins as far as FMCG business is concerned. Probably one could argue that they are in a sweet spot right now. On one side, the economy is improving as a result of which consumption demand is improving and this is basically helping more of the FMCG companies, particularly those which are having a larger amount of distribution footprint. They are getting the experience of higher amount of volume off take for as far as their products are concerned and on the other side if the raw material prices remain under control and they come down, to a greater extent, it contributes to the margin because the prices for the finished products do not necessarily come down in the same proportion in which the raw material prices come down. I have not done the calculation on each and every company but I would think easily counted somewhere around 2-3 per cent kind of a margin benefit could come into many of the FMCG companies’ case. Certainly it is going to be positive for the healthy margin of FMCG companies going forward.