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Rupee Slide

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Submitted By ajitabhisek
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MUMBAI: For India Inc, the rupee's slide comes as another blow at a time revenue growth is slowing and margins are being squeezed. The currency has lost 11% since May. This will adversely impact capital-intensive sectors and firms with foreign borrowings and those who import raw materials heavily.
Automobiles, capital goods, petroleum, power and telecom companies will bear the brunt of a weak rupee. But, sectors such as software services and pharma, with major export revenues, will benefit, though the extent of gains at the net profit level will hinge greatly on their foreign exchange hedging policies. Ads by Google
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The ET Intelligence Group analysed the impact of a weak currency on select sectors.
Most companies in the sector will gain from the rupee's fall, since a substantial proportion of their revenues comes from exports. A strong US dollar and yen will boost net sales and operating margins.
The major gainers will be Dr Reddy's Lab, Sun Pharma, Lupin, Glenmark, Wockhardt and Cadilla Healthcare as they derive significant earnings from overseas markets. Analysts reckon that with every Rs 1 movement, the earning per share of these companies will change by 1-2%. For Cipla, which focuses mostly on the domestic market, rupee's fall could be largely neutral. Aurobindo Pharma and Jubilant Lifescience may not gain much since they have huge foreign borrowings of up to $600 million (about Rs 3,600 crore).
The operating margins of software service exporters tend to go up by 30-35 bps when the rupee falls by 1% against the US dollar. What may limit the positive impact of a weak rupee on margins will be the strategy the companies adopt to pass on the benefits to clients. Besides, the amount of foreign exchange hedging and the rate at which receivables are sold in the currency forward market will also impact net profit.
Front-end companies, such as TCS, Infosys, Wipro, and HCL Tech, may report improved performance in rupee terms for the quarter to June. However, the impact on net profits will be determined by the extent of hedging losses. Telecom
Major telcos, including Bharti Airtel, Idea Cellular and Reliance Communications (RCom), have substantial foreign currency debt on their books. The sharp fall in the rupee in a short span against major hard currencies will expose these debt positions.
The impact on Bharti will be partially offset by its overseas revenue from the African region. But, the company's net loss will get wider. Its debt-related currency exposure is limited to borrowings of over $500 million (about Rs 3,000 crore) contracted in India, of which 50% is hedged.
For Idea and RCom, external borrowings are 60-70% of their corresponding total debt. Idea has hedged over half of this exposure, while the impact on RCom will be partially offset by revenue from its overseas subsidiary Globalcom.
The automobile industry, which is a generous importer of auto components, could be hit because of a fall in the rupee not only against the US dollar but also against other global currencies, including the yen, euro and pound.
The stress will be reflected in the financials of companies such as Maruti Suzuki, which has a sizeable exposure to the Japanese currency, and also on Tata Motors to the extent of foreign currency borrowings the company may have on its books.
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Other unlisted automobile companies, which rely heavily on imported components for their products, will also be hurt and may have to raise prices despite the severe slowdown in the Indian auto industry.
Bajaj Auto, with a decent exposure to the export market, will benefit because of the rupee's fall.
Petroleum Industry
The rupee's fall will have a major negative impact on the sector as 84% of the country's oil requirements is met through imports. Most companies have foreign currency debt, which will result in higher mark-to-market provisioning.
Yet, the impact will vary. Oil producers will actually benefit, although for ONGC and Oil India, a surge in the subsidy burden will negate such benefits. For mid-stream refiners such as Reliance Industries, the impact will be marginally positive, while downstream oil marketing biggies will have to bear the biggest brunt.
Gainers: Reliance Ind, Cairn India
Neutral impact: ONGC, Oil India, Gail
Cos to be hit: Indian Oil, BPCL, HPCL, MRPL, Essar Oil, Chennai Petroleum
Capital goods & engineering
The negative impact of the rupee's depreciation on the sector will be limited to the extent of unhedged foreign currency borrowings the companies may have, though this could be neutralised to an extent by foreign exchange receipts from off-shore projects, if any. While L&T could be impacted a little because of foreign currency borrowings, this could be neutralised by its offshore receipts.
For Thermax, which has been strengthening exports, a sliding rupee will have a positive impact. The impact will be netural for Bhel.
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