Costlier Imports To Hurt India Inc’s Margins.

MUMBAI: With the rupee breaching the 52 per dollar mark, profit margins of companies that import commodities or components would come under severe pressure, which could result in price increases for the consumer. Industries cutting across consumer durables, automobiles, FMCG, tyres, apparel and luxury have been impacted by the recent weakening of the rupee against key foreign currencies like the US dollar and the euro.

In a bid to release some pressure off their margins, some companies have passed on price increases to consumers, while others are contemplating taking prices up. Samsung India has increased the prices of refrigerators, washing machines and microwave ovens by 2-5% effective Monday. The extent of increase is between Rs 200 and Rs 1,000 in the case of home appliances while for mobiles, largely smartphones and other feature phones, the increase will be in the range of 3-5%, translating into an increase of about Rs 40-800. Prices of laptops will also go up by 3% due to the weakening rupee.

"The rupee crossing the 52 per dollar mark will fuel inflation and impact both the consumer sentiment as well as the industry," said Sunil Goel, senior vice-president, finance, Samsung India.

With respect to tyres, Anant Goenka, deputy managing director, Ceat, said input costs had risen by 12-13% since the rupee moved from Rs 45 to Rs 52 a dollar over the past four months. "Companies that have a significant exposure to exports will benefit from the rupee depreciation. For us, even though input costs have gone up by 10%, it is netted off against the gain in exports and so there will be a negative impact of 1%."

The falling rupee would result in high raw material costs for toilet soaps, as well, for which palm oil is an important input, which is imported. Although commodity costs had softened in recent months, the rupee depreciation cancelled out the benefit. As a result, key raw materials that go into FMCG products, such as palm oil, crude oil derivatives (such as LAB and liquid paraffin) and packaging material are expected to inch up in the coming months leading to product price hikes. "If the current scenario were to continue, the industry could see some price increases in products," said P Ganesh, CFO, Godrej Consumer Products (GCPL).

During the previous quarter, among some other companies, GCPL incurred a mark-to-market loss on account of the sharp depreciation in the rupee against the US dollar. Corporates would thus have to start looking at forward contracts as a tool to pre-empt such risk. "Based on incremental cash flows, it's high time that corporates evolve heightened treasury management and start looking at hedging - not as a means of making profit, but as a tool to mitigate the risks attached with such occurrences," said Robin Roy, associate director, financial services, PricewaterhouseCoopers.

Source : timesofindia.indiatimes.com