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Globalisation has come to the rescue of many Indian companies in times when growth at home has slowed. However, the currency turmoil in emerging markets is expected to hurt the earnings of consumer companies which derive a part of their revenues from these markets.
While the rupee has remained stable, other emerging market currencies have declined, so translation gains will deplete for companies such as Godrej Consumer, Dabur and Marico. International revenues contribute to 46 per cent of Godrej Consumer’s overall sales, 32 per cent of Dabur’s and 25 per cent of Marico’s. These companies are present in Turkey, South Africa, Indonesia and Argentina. The currencies of these countries have depreciated against the rupee sequentially. Argentina's currency is down 18 per cent, sequentially, Turkey's is down eight per cent, and South Africa is down seven per cent.
The worst hit is expected to be Godrej Consumer, which derives 70 per cent of its international revenues from markets where the currency movement has been unfavourable. The company has a presence in Indonesia through Megasari. It has three companies in South Africa — Darling, Rapidol and Kinky — and two in Argentina — Issue Group and Argencos. Analysts expect translation gains, currency-related gains while converting global revenues into the rupee, to dip in the coming quarters from the double digits witnessed in the past few.
The impact on Dabur would be marginal, as it derives only 20 per cent of its international business from countries where the currency movement has been unfavourable (its Turkey acquisition, Hobi). The impact on Marico is expected to be minimal. Kotak institutional Equities notes the translation gains in international revenues for Godrej Consumer, Marico and Dabur are likely to dip significantly versus FY14, assuming currency rates remain constant at fourth quarter levels all through FY15.
While currency translation gains will be hit due to the depreciation in some of their markets, there would be a business impact, too, on the subsidiaries of these companies. Weak currencies would end up increasing input prices for these companies, which in turn would hurt demand, as product prices would have to be increased. Analysts expect volatility in revenue and margins to continue over the next few quarters for Godrej Consumer and Dabur. Shares of Godrej Consumer are down 5.54 per cent since January, Dabur has declined 4.22 per cent, while Marico has lost 3.1 per cent.
