NEW DELHI: Despite surging input costs, the scathing price war the FMCG industry embarked upon early last year is expected to continue for another 12-18 months. Speaking to The Times of India, HLL's V-C MK Sharma said, "The price reduction phase is far from over, even though there is a pressing need for price correction.

The 5 percent hike we undertook for detergents about four months back, has hardly covered the increase in input costs."

While HLL and P&G have dropped prices of detergents and shampoos by up to 50 percent over the past 15 months, raw material costs have been correspondingly moving upwards by 15-20 percent. This led to widespread speculation that FMCG majors would take a break from price cuts and instead, start hiking prices across the board.

Sharma said though cost pressures were becoming more acute, HLL was unwilling to concede market share to competitors. "Pricing pressures will continue for at least another one-and-a-half years. After this period, we expect profit margins to get restored to about 70-80 percent of their original levels."

Even though the market buzz is that HLL could hike detergent prices yet again, owing to surging crude oil prices, analysts said the hike will hardly neutralise the inflationary trend of raw material prices.

Another price hike is being attributed to increase in prices of crude oil, which directly impacts raw material costs of linear alkyl benzene (LAB) and soda ash, besides having a trigger effect on packaging, transportation and freight costs.

Though firms have been working on improving supply-chain and other internal efficiencies, they have not been able to absorb the impact of spiralling input costs without hurting bottomlines.

On maintaining prices post value-added-tax (VAT) across all states, Sharma said, "We will take a call on prices only once the entire country is covered by VAT." While 20 states switched over to the VAT regime from April 1, some states have not yet implemented it.

Last year's price reductions have begun positively impacting HLL's topline, though profitability remains under pressure. For the first quarter ended March 31 '05, though net profit dipped 15 percent at Rs 250 crore, segment-wise sales were positive.