12/04/2010 (Times Of India), Mumbai - The strengthening of Indian rupee against the dollar could bring some cheer to fast-moving consumer goods (FMCG) companies which are challenged by fading benefits of lower raw material costs.

Prices of raw materials like palm oil, copra, LAB (linear alkyl benzene) and HDPE (high-density polyethylene), which are key ingredients of daily use items like soap, detergent and hair oil, are already showing signs of firming.

Palm oil prices, for instance, went up by 34% in the fourth quarter of fiscal year 2010 as compared to the corresponding quarter of the previous fiscal. While prices of HDPE, which go into product packaging and thus is much in demand in the entire FMCG sector, rose by around 40% during the period.

A rising rupee would negate the impact of cost increases on imported raw materials like palm oils which are used in making toilet soaps. ‘‘Rupee has appreciated by about 5% in recent past.

The benefits would accrue to us on our vegetable oil imports and would mitigate, to some extent, the impact of increased inflation on packaging materials and freight. Since rupee has seen movement in both directions in the last six months, the benefit of appreciating rupee can't be counted as sustainable savings,'' said Dalip Sehgal, MD, Godrej Consumer Products.

Milind Sarwate, chief finance, HR & strategy, Marico, said the company does not depend significantly on imports and hence, the rising rupee does not necessarily lead to lower costs.

‘‘Most Indian FMCG companies are now global MNCs. Therefore, fluctuations in rupee value can affect them in several ways, which were not earlier salient. For example, if rupee strengthens, the financial results of overseas subsidiaries of Indian MNCs lose their lustre when consolidated with the Indian parent company's results,'' said Sarwate.

According to agency reports, the rupee strengthened to its highest in more than 19 months on Friday (April 9), at 44.29 per dollar as against 44.46 on April 8. The rise in rupee is mainly on account of capital inflows and a weak US currency overseas.