Strong Re jacks MNC durables majors' margins

As the rupee gains in strength, durables majors such as TCL, Sony and Toshiba, are smiling. With 100 per cent of their product portfolio imported, these companies earn extra margins despite selling at the same price.

However, companies with huge sales volumes in India, such as LG and Samsung, are not so fortunate as imports constitute less than 10-15 per cent of their total sales.

The Korean majors, who have manufacturing plants in India, have also suffered because of the slackening exports.

According to industry body Ficci, the rupee appreciation has affected about 25 per cent of electronics exports. Last year, LG's exports were about Rs 600 crore and Samsung's durables exports touched Rs 150 crore.

A Samsung executive admitted, "Overall, the company has garnered import benefits of 3 per cent, but those have been offset by a dent in exports." Since January this year, the rupee has appreciated to Rs 41 against the dollar from Rs 44.

C M Singh, CEO, TCL India, said, "The strengthening of the rupee has been beneficial as the cost per unit is fixed on the dollar. The profits have gone up on the back of currency fluctuations."

Some countries peg the value of their currencies to the US dollar to create a stable atmosphere for foreign investments.

While TCL imports its Indian requirements from China, Japanese company Toshiba sources its supplies from Thailand and China. Sony too imports its goods from Japan, Thailand and Malaysia.

"There has been a marginal impact of the currency fluctuation as the Thai and the Indian currencies have appreciated against the dollar," said Yoshihiro Harry Funjimaki, country head, home appliances, Toshiba.

Though Toshiba is aiming for a turnover of $100 million (approximately Rs 410 crore) in India in the next year, the company claims it will not set up a manufacturing facility in the immediate future.

N Subramanian, senior consultant, Basix Forex & Financial Solutions, said, "The companies with more import content will gain as the cost per unit will reduce. Unlike the sharp and sudden appreciation in the rupee, the Chinese and the Thai currencies have appreciated gradually over time."

For instance, the Chinese yuan was 8 to a dollar last year, while it is currently trading at 7.62 to a dollar. The Indian rupee, which was trading at Rs 44 against the dollar a year ago, has appreciated to Rs 40.70.

However, companies are unlikely to pass on the import benefits to the consumer.

According to industry sources, Sony is expected to channel the gains into marketing activities. Others do not want to make a commitment without looking at how the rupee will behave in the long term.

"Normally in imports, the delivery cycle of goods is of about 80 days. The company can mull reducing prices, only if the rupee continues to be strong for a couple of quarters," said Singh.

Others do not want to make a commitment without looking at how the rupee will behave in the long term.