With the rupee reaching an all-time low against the dollar, FMCG companies are likely to offset the high cost of imports (mainly raw material) with their increased export earnings.
In fact, it is palm oil imports which are likely to hit soap-making FMCG companies.
As Mr A. Mahendran, Managing Director, GCPL, says, “The hyper-volatility of the rupee is not sustainable and input costs like palm oil used in soaps can be affected. However, in our case, only one-third of the company's turnover comes from soaps so we are not that affected while on the other hand our exports will get a boost.”
However, the impact of the rupee depreciating would vary across FMCG companies. In the case of Dabur margins may get affected, especially in the beverages category.
According to Mr Sunil Duggal, CEO, Dabur India, “Margins will be impacted as import of raw materials would be costly. But we import merely 10-15 per cent of raw materials and the impact is unlikely to be that significant except in categories like beverages which could lead to a price increase.”
In the case of Nivea India, which imports nearly two-thirds of its finished goods, for which it pays in euros and not dollars, the business plan is likely to change next year. Mr Rakshit Hargave, MD, Nivea India, said, “Buying forex covers is not cheap and the dollar and euro depreciating is bad news for us. But thankfully our top line has expanded and so we are not impacted immediately. However, next year we have to change the business plan and take a transactional route and buy euros at the current level.”
Healthy export turnovers
Other FMCG companies like Marico and GCPL already have healthy export turnovers and are likely to get compensated in spite of the sliding rupee.
“At one level imports will be costlier but Marico will benefit due to the overseas business which is currently 23 per cent of our turnover,” says Mr Vijay Subramaniam, CEO, International Business, Marico.
Adds Mr Milind Sarwate, Group CFO, Marico, “Companies that kept their imports or foreign currency loan positions open will be hurt to the extent the payment / repayment is due in the near future. The weaker rupee will hurt even as regards the longer term payments, but there may be some elbow room for covering the risk. Similarly, those who have hedged their export positions at a lower rate will have an opportunity loss. Marico does not have any such issues at this point in time. We at Marico have benefited from a clear definition of the foreign exchange management policy and its rigorous implementation.”
“FMCG companies importing palm oil like GCPL and HUL might have already hedged their import exposure but the larger picture of the impact would be on their foreign currency debt, especially the unhedged portion of that debt,” claims Mr Kaustubh Pawaskar, FMCG analyst at brokerage firm Sharekhan. purvita@thehindu.co.in