Reassessing Marico’s forex hedging strategy: With specific Reference to effectiveness of Natural hedge in foreign currency transactions (India & Egypt); Marico Limited

Abstract

The project has considerable impact on Marico’s risk management strategy. The genesis & scope of the project covered many aspects. Marico had borrowed an ECB worth 54 million USD in February 2011 with principal repayments scheduled in FY 2016-2018. The repayment rate agreed upon was Libor + 210 Bps. The role was to assess if the ECB repayments formed a natural hedge against export receivables. Else, a separate hedging strategy was intended to be identified for both repayments & export receivables. In addition to this, several critical factors could be analysed. INR has already depreciated by over 20% compared to the loan draw-down rate raising questions on effectiveness of foreign denominated loans Vis-a-Vis a rupee loan or debentures. Identifying hedging strategies of other players in the FMCG industry, other capital intensive industries and providing recommendations for Marico was another important part of the project.