It has hiked prices by 2-20 per cent on products such as soaps - Lux and Lifebuoy, laundry care - Surf and Wheel, skin and oral care - Pepsodent and the weighted average price hike across all categories would be about 1.5 per cent. At Dabur, the increase has been 3-4 per cent on an average over the last nine months.

The HLL management indicated after the results that it had taken a judicious increase in prices and would continue to do so to cover raw material costs, in other key categories, such as skin and hair care products.

Other brands too are following suit. Godrej Consumer Products (GCPL) plan on raising prices in a staggered manner with supply of fresh stocks to dealers and on an average the planned increase would be between 6-8 per cent for soaps. For hair color though, there are no immediate plans of increasing prices. At Marico, Parachute has been selling at the same price for about 20 months now but prices of Saffola are up.

The recent price hikes reflect the continued cyclical turnaround that the sector is witnessing. Revenue growth has been encouraging in recent times on increased demand and appropriate product positioning, and these price hikes should help companies attain higher margins though better price realization.

Consumer down-trading, the key cause behind the 2000-04 downswings, seems to be a thing of the past and money which was being diverted to aspirational products is now coming back to household and personal care products. Experts are also of the opinion that the recent prices will not affect aggregate demand.

Improved Margins For Most

Companies such as Marico pulled off an increase in margins by about 485 basis points to 16 per cent in the quarter while HLL's OPM was higher by 50 basis points at 13.1 per cent. Owing to the changing product mix, away from cigarettes, ITC's OPM lost around 400 basis points.

However not everyone managed to sale over the rough waters of cost inflation: Britannia's operating profit margin crashed to just over 5 per cent from 14 per cent in the second quarterly of 2006 financial year. In a highly competitive environment, Britannia was not able to pass on the higher input costs. Nestle too saw margins dip 80 basis points y-o-y to 19.7 per cent.

Market watchers surmise that few firms will risk losing market share in a growing market and will keep a close watch on their competitors' price lists.

However, what they are more likely to do is to improve the product mix and try to push higher value-added products, which would wrangle in better margins. That way even if volumes were to remain stagnant or fizzle out somewhat, the improved product mix would cushion margins.

However it is believed that with rural demand being so robust, companies would try to offer new price points at the lower end.

Companies are unlikely to use pricing as an instrument to enhance margins. That the mass market can contribute to volumes, in the future, as consumption increases, is a possibility many companies have realized. Thus increasing importance is being given to creating a good mix of volumes.

In fact many feel that should there be a reduction of input costs, companies will also not roll-back prices and thus hike margins.

Stock Valuations Will Not Be Cheap

Analysts who track FMCGs believe that while stocks may not be cheap, there could be a 15-20 per cent upside from current levels, over the next three to four quarters.

They are of the belief that the growth momentum is sustainable and that together with some price hikes, it should help margins move up by around 50 basis points.

Many however, feel that much of the upswings, stemming from good volumes, are already factored into the prices. A re-rating of the sector will happen only if margins expand significantly.

On a relative basis, valuations appear to be fair compared to the broad markets and as earnings visibility improves further, India could be witness to increased interest in the sector that offers a face to the consumption boom over the coming decades.