Imported goods may cost 8-12% more on rupee fall
The falling Indian rupee (INR) against the US dollar is set to increase prices of imported foods, fruits, grooming accessories, beauty and cosmetic products in the coming months. The INR, currently trading at 72.44 for a US dollar, has weakened 11.89% so far in this year. While most firms in the business of importing goods/products have not hiked prices yet, they will be forced to once the new buying cycle begins next month in October.
And amid the strengthening of US dollar, importers in the small and medium enterprise (SME) segment who are unable to hedge currencies will take the maximum hit. According to Sajid A Kazi, head of business development, PID India, SMEs are left with no choice but to take a beating on their profits.
"Large corporations and multinationals who are dependent greatly on imports for their day-to-day business hedge currencies. This is technically not possible for SMEs because of the sheer difference in volumes of currencies the two segments deal with. As a result, SMEs have no choice but to take a beating on their profits. If they increase maximum retail prices (MRPs) in reaction to the rupee drop against the dollar they suffer due to lower sales because increased selling price means lesser consumption," said Kazi who's company imports professional styling tools and accessories, including brands like Corioliss, Tangle Teezer, Kent Brushes and ETI Italy to name a few.
IG International, a major import/export firm of fresh produce, hasn't felt the impact on business yet but if the rupee continues to fall further, prices will head north. "This kind of fall was not anticipated but we did make sure to start damage control much earlier. We are currently hedging all our positions and our finance team has ensured that currency risks are covered for now. However, prices will definitely see an increase in coming months in the range of 8-12%," said Tarun Arora, director, IG Group of Companies that currently imports fruits like apple, pear, citrus, kiwifruit, cherries, plums, nectarines, persimmon, peaches, dragon fruit and grapes.
Retailers stocking/selling imported products said prices haven't increased yet because what's being sold currently was already contracted at rates in the previous buying cycle. For instance, Future Group's hypermarket chain Big Bazaar has some inventory of imported products from China and a very small percentage from Turkey. "The impact at present is very minuscule and has not called for a price revision. The gourmet retail chain Foodhall stocks products imported from Europe and the US. However, any change in prices in these outlets will only happen when we start buying in October for the summers. The current period including the upcoming festive months are already taken care of in the previous buying cycle," said a company spokesperson.
Falguni Nayar, founder and chief executive officer, Nykaa.com, a retailer of imported beauty and cosmetic products, said, purchases happen four months in advance. So prevailing exchange rates do not have any bearing on the prices. "Most importers in our line of business are committed for over 2-3 months. So there is no immediate pressure on pricing for now. Having said that, the new purchase prices for us as well as brand partners could be higher depending on the exchange rate. I think MRPs could go up and each brand partner will decide the rate depending on their landing costs. In this industry, pricing is more of a strategy compared to straight pass through in case of oil and petroleum industry," said Nayar adding that beauty and cosmetics is a discretionary spend category and hence, there is no immediate effect on product prices.
The market is expecting the rupee to fall further and that's worrying the big and small importers alike. According to Kazi of PID India, every time the Indian rupee takes a hit against the dollar, SME importers have to take a hit in their profit margins. "The only way to live with the reduced sales and profit margins is to protect our working capital. This is done by buying judiciously and only as per demand. The idea is to keep as much working capital free as possible and not invest in expensive inventory that may or may not sell at the desire/ planned profit margins," said Kazi.
He added, "We cannot increase MRPs overnight since there is stock in the supply chain, on the shelves, in distributor warehouses, etc. If this drop doesn't end, we will have no option but to increase the MRPs gradually to not only cover up current losses but also avoid losses in the future."
Weak INR will impact businesses, and importers are working on strategies to ensure that their business growth rate is maintained. "But sometimes, external factors are beyond anybody's control. It is important that we first know what is the bottom of this current fall. Once currencies stabilise, we can then actually work on finalising the strategy to ensure company's growth rate is maintained," Arora said, asserting that margins will take a hit in the short term.
Source :- Dnaindia.com