Industry must show import gains on rising Re
The income tax department has asked its field formations to figure out if the favourable impact of rupee appreciation was being reflected in the bottom lines and tax payments of import-intensive and FMCG companies.
NEW DELHI: It’s not just the currency trader or the exporter who keeps a sharp eye on upward movement of the rupee. The taxman does it too. The income tax department has asked its field formations to figure out if the favourable impact of rupee appreciation was being reflected in the bottom lines and tax payments of import-intensive and FMCG companies.
A stronger rupee means lower rupee prices for imported inputs. These lower costs can either be passed on to the consumer or used to increase profit margins. The income tax department’s view is that most companies seldom on the benefits to consumers.
Since the rupee appreciation has been very sharp and spread over a long period this time, it would certainly have pushed up profitability margins of the companies, feels the Central Board of Direct Taxes. It has sent a communiqué to the field formations in this regard.
ET’s own calculations bear out such reasoning. For example, with (import — exports)/sales ratio of 10% and 9% appreciation in rupee, PBT margin for the companies should improve by about 90 basis points (bps) and net margin by about 50-60 bps.
But contrary to expectations, the aggregate margins for a set of 90 companies with (imports — exports)/sales ratio of more than 10% in FY07, have shown an improvement in margin of only 0.1% as per the results of Q1’08. Against this, the aggregate average margin for all manufacturing companies has gone up by 0.6%, which means that import-dependent companies have performed even worse than the rest of the sector.
While sales growth is nearly same for the two sets, profit growth stands at 19% and 24%, respectively. This calculation excludes oil companies, which have to sell their products at the administered prices and hence have a fluctuating margin.
However, many FMCG players do not seem to rely much on imports. The companies ET spoke to have limited import dependence. Imports account for less than 2% of Hindustan Unilever’s Rs 12,000-crore turnover. Its imports include some variants of deodorants under Axe and Rexona. In skin care, HUL imports some SKUs of Pond’s Age Miracle and Dove face wash, few variants of Dove’s and Sunsilk in hair-care and one SKU in the Lakme range.
The Rs 1,200-crore Reckitt Benckiser locally manufactures all its products with the exception of automatic dish washing brand Finish. Glaxo SmithKline Consumer healthcare doesn’t import at all. Nestle India imports account for under 1% of its Rs 2,800-crore turnover.
The Rs 1,200-crore Procter & Gamble Hygiene and Health Care imports about 30% of its products sold in India. These include shampoo brands Head & Shoulders and Pantene, skin-care range Olay and Pampers diapers. Under the acquired Gillette portfolio, P&G imports Mach 3, Duracell batteries and one variant of Oral-B Exceed.
However, the company’s biggest brands Vicks and Whisper and its detergent range including Ariel and Tide are locally manufactured.
L’Oreal India, the maker of brands such as Garnier Fructis, Maybelline, Lancome, Nutrisse and Excellence, imports about 10-15% of its products. Imported products include cosmetics brand Maybelline. However, its haircare and skincare products are manufactured at its plant in Pune.
deepshikha.sikarwar@timesgroup.com
A stronger rupee means lower rupee prices for imported inputs. These lower costs can either be passed on to the consumer or used to increase profit margins. The income tax department’s view is that most companies seldom on the benefits to consumers.
Since the rupee appreciation has been very sharp and spread over a long period this time, it would certainly have pushed up profitability margins of the companies, feels the Central Board of Direct Taxes. It has sent a communiqué to the field formations in this regard.
ET’s own calculations bear out such reasoning. For example, with (import — exports)/sales ratio of 10% and 9% appreciation in rupee, PBT margin for the companies should improve by about 90 basis points (bps) and net margin by about 50-60 bps.
But contrary to expectations, the aggregate margins for a set of 90 companies with (imports — exports)/sales ratio of more than 10% in FY07, have shown an improvement in margin of only 0.1% as per the results of Q1’08. Against this, the aggregate average margin for all manufacturing companies has gone up by 0.6%, which means that import-dependent companies have performed even worse than the rest of the sector.
While sales growth is nearly same for the two sets, profit growth stands at 19% and 24%, respectively. This calculation excludes oil companies, which have to sell their products at the administered prices and hence have a fluctuating margin.
However, many FMCG players do not seem to rely much on imports. The companies ET spoke to have limited import dependence. Imports account for less than 2% of Hindustan Unilever’s Rs 12,000-crore turnover. Its imports include some variants of deodorants under Axe and Rexona. In skin care, HUL imports some SKUs of Pond’s Age Miracle and Dove face wash, few variants of Dove’s and Sunsilk in hair-care and one SKU in the Lakme range.
The Rs 1,200-crore Reckitt Benckiser locally manufactures all its products with the exception of automatic dish washing brand Finish. Glaxo SmithKline Consumer healthcare doesn’t import at all. Nestle India imports account for under 1% of its Rs 2,800-crore turnover.
The Rs 1,200-crore Procter & Gamble Hygiene and Health Care imports about 30% of its products sold in India. These include shampoo brands Head & Shoulders and Pantene, skin-care range Olay and Pampers diapers. Under the acquired Gillette portfolio, P&G imports Mach 3, Duracell batteries and one variant of Oral-B Exceed.
However, the company’s biggest brands Vicks and Whisper and its detergent range including Ariel and Tide are locally manufactured.
L’Oreal India, the maker of brands such as Garnier Fructis, Maybelline, Lancome, Nutrisse and Excellence, imports about 10-15% of its products. Imported products include cosmetics brand Maybelline. However, its haircare and skincare products are manufactured at its plant in Pune.
deepshikha.sikarwar@timesgroup.com
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