Falling Rupiah Hits Indonesian Firms

Falling Rupiah Hits Indonesian Firms

By Francezka Nangoy on 8:54 am August 6, 2013.
The weak rupiah might be a boon to exporters keen to get their products to foreign markets cheaply, but for some local firms it is eroding profit margins and leaving them with foreign exchange losses.

After tumbling 2.7 percent against the US dollar in the first six months of the year, the rupiah underwent a sharp depreciation in July, leaving it 6.4 percent weaker for the year so far, according Bank Indonesia. That makes the rupiah one of the worst-performing currencies in the Asia Pacific region.Vidjongtius, the finance director of state-controlled pharmaceuticals company Kalbe Farma, said he was alert.

“We remain cautious on rupiah movements and expect some volatility to persist in the near term and its impact towards the company’s profitability,” Vidjongtius said in a statement last week.

The company is hurt by a weak rupiah because it relies on imported ingredients for its products. The company’s gross margin fell to 48.8 percent in the first six months this year from 49.1 percent in the same period in 2012.

Maria Renata, an analyst with Trimegah Securities, described the margin as “flat,” suggesting that Kalbe may have “passed on the increasing costs to the consumer.”

Kalbe posted a Rp 3.34 billion ($325,000) foreign exchange loss in the first half, a swing from a Rp 16.4 billion net foreign exchange gain in the same period last year.

Japfa Comfeed Indonesia, one of the country’s largest poultry companies, posted a Rp 15.5 billion net foreign exchange loss in the first half, compared to a Rp 14.1 billion foreign exchange gain a year earlier. Japfa feels the crunch because it imports all of the soybeans it buys for animal feed.

While Japfa reported a 22 percent increase in revenue to Rp 10.3 trillion in the January-June period, its foreign exchange loss combined with increasing sales and administrative costs resulted in a 16 percent decline in net income to Rp 489 billion for the first-half period.

But some companies have prepared themselves for the weaker rupiah, such as mobile-phone handset retailer Erajaya Swasembada, which has hedged its rupiah position.

Djatmiko Wardoyo, the marketing director, said the company has deals with handset manufacturers to minimize the currency risk, including an agreement to buy handsets in rupiah. “These [measures] are done so we don’t need to increase our selling price,” he told reporters last week.

But other companies benefit from the weak local currency.

Garment manufacturer and retailer Trisula International posted a Rp 183 million foreign exchange gain in the first half, bouncing from a Rp 336 million foreign exchange loss a year earlier. The company exports 80 percent of production to retailers including Perry Ellis, Hart Schaffner Marx, Hush Puppies and Mizuno.

Helmi Arman, an economist with Citigroup, said industries would benefit from the currency drop if they have a high ratio of exports to imports.