Currency affairs: How the steep fall in rupee will impact Sensex companies
The sharp sequential slide of over 6 per cent of the rupee in the June quarter may impact the near-term performance of companies and may even hamper their efforts to stabilise margins in a slowing economy. While export sectors, including IT and pharmaceuticals, are natural beneficiaries of a weak rupee, the positive impact may be limited by the level of foreign exchange hedging these companies have.
For importers, a weak rupee will offset the benefit of falling global commodity prices. The ET Intelligence Group analysed S&PBSE 30 companies to assess the impact of a weak local currency on their financials.
The company will benefit in terms of a better topline, thanks to a weaker rupee, which may also boost operating margins in rupee terms. Net
The rupee's fall will offer some comfort toInfosysBSE -2.02 %, which is finding it tough to grow revenues. The company will be able to report higher revenue and operating profit growth. Since it books foreign exchange hedges at the end-of-the-prior-quarter rate, the company may have to book forex loss in the June quarter, which will hurt net profit.
The positive impact of a weak rupee visa-vis the dollar on net profit will be offset to some extent by forex losses on account of currency hedging. The company's hedging exposure was worth over $2.1 billion at the end of the March quarter.
The country's biggest telecom player will partially benefit from a weak rupee, considering it has nearly one-third of its revenue in dollar terms. It has contracted about $500-million dollar-denominated debt in India, which will be impacted by the rupee's fall. It has hedged 50 per cent of its debt, which will absorb some of the shock.
The country's biggest importer of crude oil, RIL will gain from a weak rupee since all its end products are either exported or sold locally at import-linked prices. The company has nearly Rs 11,400 crore of foreign currency loans, the servicing of which will become costly. The net impact is expected to be marginally positive.
India's biggest producer of crude oil and natural gas should benefit since the prices of both these commodities are dollar linked. However, a weak rupee also means higher under-recoveries for the petroleum sector, a part of the burden which has to be shouldered by ONGC. The impact of a depreciating rupee is only marginally positive for the company.
In its transmission business, Gail bills its customers on a rupee-per-unit basis, which implies the currency depreciation is of little consequence to it. However, for the polymer business, which was the biggest profit earner for the company in the March quarter, a weak rupee will translate into better profitability. Similarly, it stands to benefit in the liquid hydrocarbons business as well. But, the ad-hoc subsidy burden remains unpredictable.
The performance of Tata Power's ultra mega power plant, or UMPP, at Mundra is set to get impacted due to the currency's weakness. The 4,000-MW UMPP at Mundra uses imported coal and does not have a fuel pass-through mechanism. In the March quarter, the company had an average fuel cost of Rs 1.9 per kilo watt-hour, while the average realisation at Mundra plant was Rs 2.67 per kilo watt-hour.
For NTPC, the impact will be minimal. Any fluctuations in currency movements are passed through to customers or distribution companies. NTPC has a fuel pass-through mechanism for all of its generation units using imported coal and have foreign borrowings.
Overall, the banking sector will not be impacted much. The bank might book some forexlosses on its proprietary trading book depending on the positions taken. Even its overseas balance sheets are matched and will not be affected much. Normally, banks' Tier-2 borrowings are long-term and not marked-to-market, thus hedging them against any interest rate movements.
The macroeconomic scenario hardly offers much hope for a recovery in the banking sector. The first quarter of a fiscal is normally weak for any bank and delayed interest rate cuts will not help improve the scenario.
The pressure on inflation as a result of a weak rupee will leave less head room for RBI to cut rates. It is quite likely that the interest rate reversal cycle will be shifted to August and banks may not be in a position to cut rates.
Rupee volatility will not have much impact onhousing finance firms, just like banks.
Having de-merged its export business three years ago, the impact of a sliding rupee will be negative for the company due to higher cost of imported raw materials. This will increase the overall cost pressure on theFMCG major, which has been aggressively undertaking measures to contain costs.
With most of its raw materials being sourced locally, ITC is likely to be least hurt by the rupee's depreciation. The company is on course to gain from its exports business, which earned over Rs 2,500 crore in FY12.
A weaker rupee is favourable for this drug company as it earns a little over half of its revenues from exports. The share of exports in total revenues is rising and a benign currency movement is likely to boost this. This will be helpful at a time the growth of the company's domestic business is stunted.
With close to 75 per cent of its revenues generated outside India, the rupee's slide is positive for the company, given the fact that it reports quarterly performance in rupees. However, the flip side of the rupee's depreciation could be in the form of increased cost of imported raw materials.
The drugmaker may not benefit much from any further weakness of the rupee since its foreign currency cash flows of $480 million for the next 18 months are largely hedged at around Rs 56 to Rs 59 to a dollar.
Source : By ET Bureau