Deft rebound

BS Compass

Marico Industries, after its disastrous showing in the March quarter, has bounced back well, what with a 14 per cent growth in sales of its core consumer products business.

The consumer products business comprises Marico India and Marico Bangladesh and excludes the two new businesses the company has entered, Kaya Skin Clinics and Sundari LLC.

Including the marginal turnover of the new businesses attributable to Marico's stake, the group turnover works out to Rs 209 crore, which represents a 15 per cent year-on-year growth.

Clearly, its the core consumer products business that has driven turnover growth. According to the company, the 14 per cent sales growth of this business can be approximately broken up into a seven per cent volume growth and a seven per cent price growth. Further, hair oil volumes grew 18 per cent, while sales of edible oils shrunk marginally.

Volumes of the sunflower oil brand, Sunflower, grew slightly and since the availability of safflower has picked up towards the end of the June quarter, even the sales of Saffola are expected to pick up going forward.

The contribution of new products continued to rise, and it now stands at 18 per cent of turnover, compared to 16 per cent same time last year.

However, margins were under pressure - operating margin of the consumer products business has declined by about 100 basis points, mainly as a result of higher raw material prices.

Operating profit growth was almost flat as a result, and the 13 per cent growth in PBT was possible because of a decline in provision for depreciation, which fell from two per cent of sales in Q1FY03 to 1.3 per cent last quarter.

If one were to add the losses of the new businesses, the growth in PBT stands at just three per cent. But obviously, that's because these businesses are still in nascent stages, and the quantum of loss is not extremely high at Rs 1.7 crore.

The Marico stock has been doing well off late, and has outperformed the Bombay Stock Exchange FMCG index, although it still gets commodity-like valuations of around nine times trailing earnings.

Discouraging NRI money

After insisting that inflows of hot money have had nothing to do with the pile-up of forex reserves, the RBI has finally let the cat out of the bag, capping the interest rate on non-resident rupee deposits at 250 basis points above LIBOR.

Clearly, a recent surge in NRE deposits ""-repatriable deposits denominated in rupees""-is behind the decision. RBI data puts these inflows at $966 million in April.

True, part of the rise can be attributed to NRNR deposits, which have since been discontinued, being renewed as NRE deposits, but even adjusting the figures for these, the rise in NRE deposits works out to $808 million in April, which is high by any standards. NRE deposits increased by $6.3 billion in FY 2003.

At 250 basis points above current Libor/swap rates, the maximum rate for a 1-year deposit will be around 3.7 per cent for 1-year deposits, 4.2 per cent for 2-year deposits, and 4.7 per cent for 3-year funds.

That's a big come down from earlier rates""""ICICI's NRE interest rates were 5.75 per cent for deposits of 1 year to less than 2 years, and 6 per cent for deposits for longer terms.

Even at the lowered rates, however, NRE deposit rates will still be far more attractive than certificate of deposit rates in the US. For instance, a 1-year CD in the US has an average rate of 1.67 per cent, a 2-year CD 1.95 per cent, and a 3-year deposit 2.37 per cent.

The RBI must also have been influenced by the acceleration in the rate of appreciation of the rupee. For example, after gaining 135 paise against the dollar in the first five months of the year, the appreciation in the month to July 15 has been 55 paise.

What's more, rupee appreciation against the dollar has continued despite the dollar appreciating against other currencies such as the Euro.

The rupee has appreciated against the dollar by 1 per cent, and against the Euro by around 6 per cent in the last month. Nevertheless, dealers point out that the rupee had continued to appreciate last year, when inflows into NRE deposits were around $500 million a month.

That gives a weekly inflow of about $125 million, while forex reserves have been increasing at a far higher rate. In other words, it's not only NRE deposits that have led the rupee to appreciate. Most dealers believe therefore that rupee appreciation will continue, albeit at a slower rate.

With contributions from Mobis Philipose