List of consumer cos to hit from rupee depreciation
According to Anand Rathi Institutional Research, the rupee depreciation would have the maximum impact on paint companies and Pidilite, and some impact on personal care companies such as Hindustan Unilever (HUL) and Emami However, the research firm continues to be upbeat concerning food companies, and see little impact on their earnings.
June 21, 2013 / 15:59 IST
AnandRathi's report on India consumer sector
Major raw materials for consumer companies - light liquid paraffin (LLP), linear alkyl benzene (LAB), wax and packaging material (HDPE) - are crude-oil linked and imported. Other major imported raw materials are palm and other edible oils. Packaging material is the biggest imported raw material and makes up ~9 percent of sales of consumer companies. The ~10 percent rupee depreciation in the past two months is expected to raise raw material costs for all the companies after a one- or two-quarter lag and may squeeze FY14 earnings 3-4 percent. No consumer company has foreign debt except Nestle India (foreign debt of Rs 10.5bn).In 9MFY13, consumer companies raised prices aggressively (6-10 percent). Though no major price hikes were seen in 4QFY13, consumer companies will be compelled to raise prices 2-3 percent to pass on higher raw material prices. As inflation is also expected to move up 100bps merely due to rupee depreciation, hiking prices may prove difficult.
Transport costs make up 2 percent of net sales and may move up further. However, transport costs incurred by distributors and wholesalers will also climb, and cut their earnings 300-400bps. The higher transport costs could make selling in rural areas non-profitable, resulting in slower distribution expansion. Export revenues may constitute a natural hedge. Some companies such as Dabur India, Marico, Hindustan Unilever (HUL), Asian Paints and Pidilite Industries have exports. Their international business accounts for 10-20 percent of their net sales. We believe this may constitute a natural hedge against the depreciating rupee."Our take: "We believe that the rupee depreciation would have the maximum impact on paint companies and Pidilite, and some impact on personal care companies such as HUL and Emami However, we continue to be upbeat concerning food companies, and see little impact on their earnings," says AnandRathi research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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