Indian FMCG firms are turning to efficient cost management and local procurement of raw materials to offset increasing pressure on margins due to the weakening of rupee that has spiked input costs.
Having already taken a series of price hikes this year, the firms have little room to take a similar step and are worried that their bottomlines could be hurt.
“The impact of this depreciation can be mitigated through better cost management and feasible pricing changes. The extent of mitigation will depend upon the ability of the respective business to cut costs or take up prices,” Marico CFO Milind Sarwate toldPTI.
He, however, hastened to add that FMCG firms cannot be oblivious to the expectations of the consumers in order to sustain demand over the foreseeable future.
“If that has to be tapped unhindered, businesses cannot pass on all the forex-led cost push on to the consumers. Therefore, this forex push could hurt bottomlines too,” Mr. Sarwate said.
Emami Director Aditya Agarwal said input costs have already gone up as the rupee weakened against the dollar.
“We are exploring ways on how we can use raw materials from India instead of importing them. We are looking for substitutes here..,” he said.
In the last quarter, Emami’s net profit was down by 5.07 per cent to Rs 50.64 crore as a result of foreign exchange loss and high input cost. Similarly, another domestic company Godrej Consumers Product (GCPL)’s net profit were marginally down by 2.56 per cent to Rs 131.07 crore.
In the last few months, FMCG firms, including Hindustan Unilever, Dabur, GCPL and Emami have increased prices of their various products between 3 per cent and 10 per cent.
GCPL, which registered a foreign exchange loss of Rs 16.57 crore in the quarter ended September 30, 2011, said the weakening of rupee has also impacted the raw material cost, thereby increasing the cost structure of the company.
Earlier this month, while speaking to analysts Godrej Group Chairman Adi Godrej had stated that the company has covered its near term exposure on oil payables till December 2011, well before the rupee depreciation started in August.
“The global environment continues to be uncertain. As always, we will continue to closely monitor the situation and take actions to limit any adverse impact from current fluctuations, as necessary,” he said.
The Indian rupee has been losing ground to the US dollar and touched a record low of Rs 52.50 per US dollar this morning on the Interbank Foreign Exchange today on sustained demand for the American currency.