Indonesian Consumer Stocks Under Pressure as Rupiah Weakens Amid Global Uncertainties

Indonesian consumer goods and pharmaceutical companies are grappling with shrinking profit margins despite robust sales, as a depreciating rupiah and soaring raw material costs take a heavy toll. Firms like PT Mayora Indah and PT Kimia Farma, which rely heavily on imported inputs, are facing an uphill battle to maintain profitability, while analysts warn that broader economic uncertainties—ranging from global trade tensions to domestic political concerns—could exacerbate the situation through 2025.

With the Indonesian currency under persistent pressure, stock prices in the consumer sector have slumped, dragging down the broader Indonesia Stock Exchange (IDX) Composite index. Investors are now turning to “defensive” stocks such as convenience store chain Alfamart and instant noodle giant Indomie to weather the volatility. Yet, as global commodity prices fluctuate and the specter of a renewed US-China trade war looms, questions remain about whether these companies can shield themselves from further economic headwinds.

Currency Woes and Rising Costs

The rupiah’s depreciation has emerged as a central challenge for Indonesia’s fast-moving consumer goods (FMCG) sector. PT Mayora Indah, known for popular brands like Kopiko coffee candy and Beng-Beng chocolate wafers, reported a 14.5 percent increase in net sales to Rp 36.1 trillion (approximately $2.3 billion USD, based on exchange rates as of 21 March 2025, where 1 USD = Rp 15,600) last year. However, its net profit declined by 6.3 percent to Rp 3 trillion ($192 million USD), with gross margins contracting from 26.7 percent to 23 percent, largely due to higher costs for imported cocoa and coffee beans.

A similar trend has affected industry giants like PT Unilever Indonesia, which saw its bottom line plummet by nearly 30 percent, and PT Ultrajaya Milk Industry & Trading Company, with a more modest but still concerning 2.6 percent drop in net profit. Pharmaceutical firms are not immune either. PT Kalbe Farma recorded an 18.2 percent year-on-year decline in net profit for 2023, and while it rebounded with a 15 percent increase to Rp 2.4 trillion ($154 million USD) in the first nine months of 2024, its gross margin dipped slightly. State-owned PT Kimia Farma fared worse, with its net loss ballooning to Rp 421.8 billion ($27 million USD) as its gross margin fell sharply from 36.5 percent to 29.9 percent.

Analysts attribute much of this strain to the rupiah’s weakness, which inflates the cost of imported raw materials essential for production. “Mayora is feeling the squeeze from surging raw material prices and rupiah depreciation, which are driving up costs” said Abyan Habib Yuntoharjo, a research analyst at Mirae Asset Sekuritas, in a statement last month. The situation is compounded by global commodity price hikes, particularly for cocoa and coffee, which are eroding profitability across the sector.

Market Slump and Investor Sentiment

The financial struggles of consumer and pharmaceutical firms have reverberated through Indonesia’s stock market. A February report by Morgan Stanley noted a 12 percent de-rating of Indonesian consumer stocks in 2024, with shares now trading at a 33 percent discount to their five-year average forward price-to-earnings multiples. The report cited a combination of sluggish growth, political uncertainty, corporate governance issues, and rising capital costs as key drivers of the downturn, alongside the rupiah’s volatility.

The IDX Composite index, a benchmark for Jakarta-listed companies, has underperformed compared to other regional markets this year. A sudden drop during the morning trading session on Tuesday even prompted a brief suspension of trading, underscoring the fragility of investor confidence. Divya Gangahar Kothiyal, an equity analyst at Morgan Stanley, warned in the February report that “a weaker rupiah could dampen consumer sentiment and squeeze gross margins for select consumer companies” throughout 2025, if current trends persist.

Adding to the uncertainty is the potential for a broader trade war, particularly if protectionist policies under US President Donald Trump intensify. Cindy Alicia Ramadhania, a research analyst at Sinarmas Sekuritas, cautioned that such developments could fuel further volatility in commodity and foreign exchange markets, posing additional risks to the rupiah. “If these companies can find ways to mitigate rising commodity costs, their bottom-line performance could improve” she told The Jakarta Post on 11 March.

Broader Economic and Political Context

Indonesia’s economic challenges are unfolding against a complex backdrop of domestic and international pressures. Analysts point to the country’s struggle to attract sufficient foreign investment, particularly from companies seeking to relocate production facilities from China to gain better access to the US market amid ongoing US-China trade tensions. Ezaridho Ibnutama, head of research at NH Korindo Sekuritas Indonesia, noted that the rupiah is likely to remain under pressure until at least the end of 2025, as these geopolitical dynamics play out.

Domestically, political uncertainty has also weighed on market sentiment. Recent economic policies under President Prabowo Subianto have drawn scrutiny from investors, with some expressing concerns over fiscal confidence and governance issues. While consumer spending power is expected to rise modestly this year, Morgan Stanley cautioned that risks such as high inflation and further rupiah depreciation could offset any potential gains, particularly for companies heavily exposed to imported inputs.

The interplay of these factors has created a challenging environment for Indonesia’s consumer sector. Beyond the immediate financial metrics, there is a palpable sense of unease among market participants about the long-term implications of sustained currency weakness and global trade disruptions. If unaddressed, these issues could dampen not only corporate earnings but also broader economic growth, especially in a country where consumer spending accounts for a significant portion of GDP.

Defensive Plays Amid Volatility

Despite the gloomy outlook, some analysts see opportunities in so-called “defensive” consumer stocks, which tend to remain stable during economic downturns. Abyan from Mirae Asset Sekuritas highlighted PT Sumber Alfaria Trijaya, which operates the Alfamart convenience store chain, as a resilient option. Unlike food manufacturers, Alfamart is less directly impacted by rising raw material costs, as consumers are likely to continue purchasing groceries regardless of economic conditions.

Similarly, PT Indofood CBP Sukses Makmur, known for its Indomie instant noodles, is often classified as an “inferior good”—a product that sees increased demand when consumers tighten their budgets. “ICBP’s growth remains robust, with around 20 percent bottom-line expansion, excluding forex losses” Abyan noted. Cindy from Sinarmas Sekuritas, meanwhile, pointed to poultry producer PT Japfa Comfeed Indonesia, which tripled its net profit to Rp 3.2 trillion ($205 million USD) last year on the back of a 9 percent revenue increase to Rp 55.8 trillion ($3.6 billion USD).

Ezaridho of NH Korindo Sekuritas offered a different perspective, advocating for investments in the palm oil sector, which continues to benefit from strong global demand across Asia, Europe, and the Americas. He argued that palm oil companies are less affected by political turmoil and are actively pursuing corporate actions to bolster their positions, making them a safer bet in uncertain times.

Looking Ahead

As Indonesia navigates this period of economic turbulence, the resilience of its consumer and pharmaceutical sectors will be tested. While defensive stocks offer a temporary refuge for investors, the broader challenges of rupiah depreciation, raw material costs, and global trade uncertainties are unlikely to dissipate soon. For companies like Mayora and Kimia Farma, finding innovative ways to hedge against currency fluctuations and rising input costs will be critical to restoring profitability.

For now, the mood in Jakarta’s financial circles remains cautious. With the IDX Composite index lagging behind regional peers and analysts bracing for potential inflationary spikes, the path forward is fraught with uncertainty. How Indonesia’s policymakers and corporate leaders respond to these challenges could determine not just the fate of individual companies, but the trajectory of the country’s economic recovery in the months and years ahead.