Siddharth Tak/Rohit Joshi/ZRG
The weakness in Indian rupee has made imports expensive thereby forcing import-oriented companies to hike product prices. In the first quarter of the current fiscal (Q1FY14), rupee has depreciated by nearly 8.5 percent. Rupee has breached 61 mark against the dollar on July 8, 2013 and touched all-time low of 61.21. Experts believe that rupee depreciation may bring margins of import-oriented companies under pressure.
Recently, companies like Indraprastha Gas Limited (IGL), Exide Industries, OMCs (oil marketing companies) have increased the respective product prices in order to protect the margins. IGL has hiked the prices of compressed natural gas (CNG) and domestic piped natural gas (PNG) by Rs 2 per kg and Rs 1 per unit respectively in Delhi. The move has been taken to compensate part of increase in input costs because of rupee depreciation. Even, Exide Industries has raised battery prices across segments by 5–6 percent on high import cost of lead. OMCs have also increased the price of petrol due to the slide in rupee.
Furthermore, many companies are planning to follow the suit. Videocon is looking to increase the price of set-top box after the market leader Dish TV raised the prices of its set-top boxes by Rs 250. Tyre companies are also mulling price hike as they largely imports rubber from Thailand, Indonesia. Natural rubber is the major raw material used in the manufacture of tyres and accounts for 60-65 percent of overall raw material cost. In case of JK Tyre, rubber constituted 65.5 percent of total raw material cost in fiscal 11-12. For Ceat Limited, rubber constituted 64.33 percent of total raw material cost in fiscal 11-12. For MRF Limited, rubber constituted 65.02 percent of total raw material cost in fiscal 11-12.
Similarly, paint companies may follow the move as these companies import nearly 25 percent of raw materials. In case of Exide Industries, while lead constituted 77.18 percent of total raw material cost in fiscal 12-13, company imports about 60 percent of its lead requirements.
Reasoning out the price hike undertaken by import-oriented companies, Nipun Mehta, Founder & CEO, BlueOcean Capital Advisors, opined, “Import-oriented companies are going to hike prices as their operating costs are going up. Hence, they will try to pass on to the consumers. Essentially the oil marketing companies will be largely impacted by the rupee fall as they are the largest importer of crude.”
In sync with the view, Avinash Gorakshakar, research head, miintdirect.com, said, “Import-sensitive sector will be worst hit by rupee depreciation. Although companies having pricing power (generally FMCG companies) may opt for price hike yet it would be not easy for other companies to hike product prices as volume growth will suffer. Hence, other companies which don’t have pricing power will take one or two month before opting for price hike.”
However, Sudip Bandyopadhyay, President, Destimoney Securities, argued, “Except IT companies, I think every single company in India will get impacted because of rupee downfall. Wherever possible, companies will try to the pass the cost on to the end consumers and where it is not possible, companies will absorb the costs.”
Referring to the impact of rupee depreciation on the corporate earnings, Gorakshakar at miintdirect.com said, “Earnings of India Inc will witness some negative impact of rupee depreciation in Q1FY14. Imported inflation will have a negative impact on the demand (sales volume) for the next one quarter.”
Reiterating the view, Bandyopadhyay at Destimoney Securities asserted, “The second quarter of the current fiscal (Q2FY14) will be disastrous as full impact of rupee downfall will come into play.”