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Taxmen smell moolah in rising Re, to check out beneficiaries books
August, 04th 2007


ITS 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. The lower costs can either be passed on to the consumer or used to increase profit margins. The income-tax departments view is that most companies seldom pass on the benefits to consumers. Since the rupee appreciation has been 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 communiqu to the field formations in this regard.

ETs 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 90 basis points (bps) and net margin by 50-60 bps. However, contrary to expectations, the aggregate margins for a set of 90 companies with (imports exports)/sales ratio of more than 10% in 2006-07 have shown an improvement in margin of only 0.1% as per the results of Q1, 2007-08.

Against this, the aggregate average margin for all manufacturing companies has gone up 0.6%, which means import-dependent companies have performed 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. The 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 Unilevers (HUL) Rs 12,000-crore turnover. Its imports include some variants Axe and Rexona deodorants. In skincare, HUL imports some SKUs of Ponds Age Miracle and Dove face wash, some variants of Dove and Sunsilk in haircare 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. GlaxoSmithKline Consumer Healthcare doesnt 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 & Health Care imports 30% of its products sold in India. These include Head & Shoulders and Pantene shampoos, Olay skincare range and Pampers diapers. Under the acquired Gillette portfolio, P&G imports Mach 3, Duracell batteries and one variant of Oral-B Exceed toothbrush. However, the companys biggest brands Vicks and Whisper and its detergent range including Ariel and Tide are manufactured locally.

LOreal India, the maker of brands such as Garnier Fructis, Maybelline, Lancome, Nutrisse and Excellence, imports 10-15% of its products. Imported products include cosmetics brand Maybelline. However, its haircare and skincare products are manufactured at its plant in Pune.

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