The Indian rupees free fall would see both gainers and losers among Indian companies,depending on their business model,foreign debt vis-a-vis earnings and hedging strategies.
For instance,according to a Bank of America Merrill Lynch report,rupee depreciation is a positive for earnings Sensex EPS rises 3% on a 5% fall in rupee. However,this masks the loss in forex loans,which,due to accounting rules,are not routed through the profit-and-loss statement (P&L).
As per BoFA,the gainers from a falling rupee would be HCL and Infosys in the IT sector,Lupin and Cipla in pharma (which have high forex revenues) as well as commodity companies like Sail and Tata Steel,which gain due to a higher landed price.
Among the losers are commodity users like commercial vehicle maker Ashok Leyland and FMCG firm Asian Paints. Companies with high foreign debt,such as HPCL,Bharti Airtel and Reliance Communications,are also on the losing side.
According to a Kotak strategy report,companies with large foreign currency revenues and profitability,such as Cairn,companies in IT,metals and pharma sectors and Reliance Industries stand to benefit in this scenario,while companies with foreign currency costs and rupee revenues like those in the aviation sector,Castrol,downstream oil and unregulated utilities will lose significantly.
Analysts said Reliance Industries is expected to be one of the major beneficiaries as it stands to benefit across its core refining and petrochemicals segments,with domestic selling prices linked to the landed cost of imports.
In the power sector,the rupee’s slide is expected to eat into the profits of the country’s major power producers. Companies like Adani Power and JSW Energy,which are mostly reliant on imports,will be hit. It is also a worry for Tata Power,even as it owns coal mines in Indonesia,which gives it a slight cushion.
In the telecom space,Bharti Airtel,which has global debt of more than $11 billion,said the impact would be minimal. “Our global debt of more than $11 billion is in various currencies and countries across our operations in 20 countries. For debt repayment,the dollar rupee movement impacts only the USD debt taken in India,which is less than $0.5 billion. Of this,a minimum 50% is hedged at all times,” said a Bharti Airtel spokesperson.
According to BoFA,Indian companies route most of the forex debt via balance sheet,thereby limiting the P&L impact (MTM impact). Many Indian firms like Bharti,Tata Steel etc,have foreign subsidiaries that have raised foreign debt to acquire assets. The impact of a falling rupee would be limited for them. However,companies that have raised forex debt for domestic business would be hit, it added.
For the Aditya Birla Group firm Hindalco,the overseas dollar borrowings are limited to its 100% foreign subsidiary Novelis. “The fall in rupee does not impact Hindalco negatively on the foreign borrowings front as it is all in Novelis and gets covered by the operating cash flows of the overseas subsidiary. In fact,the fall in rupee benefits most Indian metal firms as their product unit price is dollar-linked. For Hindalco,in particular,if the global aluminium prices remain stable,the company’s margins will actually improve,” Sanjay Jain,an analyst at Motilal Oswal,had told FE earlier.
In the pharma sector,rupee depreciation is seen as a positive for firms with a focus on
exports. For export-oriented units,it will be a positive as realisations will be higher due to the weakening rupee and will benefit firms like Glenmark, said Rajesh Desai,executive director,finance,Glenmark.