With the rupee continuing to depreciate against the dollar, CRISIL Research expects foreign exchange losses of these companies to remain at around Rs 3,500-4,000 crore in the October-December 2011 quarter.
The recent depreciation of the rupee against the US dollar has resulted in one of the highest aggregate forex losses in a single quarter in the last five years.
The sharp rupee depreciation and nearly threefold rise in foreign debt of these companies have led to foreign exchange losses worth Rs 4,800 crore in the July-September 2011 quarter for 50 companies that make up the NSE NIFTY index. Their Profit before tax (PBT) has fallen by around 8 per cent.
With the rupee continuing to depreciate against the dollar, CRISIL Research expects foreign exchange losses of these companies to remain at around Rs 3,500-4,000 crore in the October-December 2011 quarter.
The rupee has depreciated by nearly 18 per cent against the dollar since July 2011.
“Demand for dollars increased due to repayment pressures on private foreign debt and the rising import bill. But supply failed to keep pace as foreign inflows dwindled due to rising risks in the Eurozone. The resultant mismatch led to the sharp fall of the rupee,” says Dharmakirti Joshi, Chief Economist at CRISIL.
An analysis of the effect of the rupee’s steep depreciation on 42 Nifty companies revealed that, at an aggregate level, these companies reported foreign exchange losses of about Rs 4,800 crore in the July-September quarter –which was around 8 per cent of their total profit before tax of Rs 57,200 crore.
According to CRISIL, the foremost reason for these foreign exchange losses is the high levels of foreign currency debt, which needs to be reported using the closing exchange rate.
The cumulative foreign currency debt of the Nifty companies considered in the analysis is an estimated Rs 1,50,000 crore. This is around 24 per cent of their total outstanding debt, as per the latest available company annual reports.
The hedging policy of these companies also plays a role in determining their foreign exchange losses, as the derivative instruments are marked-to-market, says CRISIL.
At a sectoral level, sectors such as oil refining & marketing, telecom, and steel have high gearing ratios. This ratio measures how much of a company’s activity is funded by its own funds and how much by creditors funds.
CRISIL found that over one-fourth of the debt of companies in these sectors is foreign currency denominated, and thereby likely to be affected by any rupee fluctuation in rupee value.
Moreover, in case of oil refining and marketing, a significant portion of the inputs, i.e., crude oil, is dollar-denominated, which can magnify the impact of foreign exchange losses.
By contrast, sectors such as IT and pharma, with high exposure to export revenues at around 75 per cent and 40 per cent respectively, and low debt levels, are expected to gain from the rupee’s depreciation.
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