Rupee's impact on India Inc: Who gains, who loses?

The rupee is falling like there is no tomorrow and it feels like everyone’s a loser. Stock markets, consumers, producers, and of course, importers.

Exporters should be rejoicing, but given the state of the world economy, even a fall in the rupee isn’t going to help boost demand much among developed nations that are struggling with either slowdown or fiscal austerity.

So who are the top losers?

In its latest report, Moody’s highlights the key sectors/companies that gain and lose from the rupee’s plunge.

The first group to be hit hard by the rupee’s fall is obviously oil companies.

Oil companies make up the biggest chunk of India’s import bill. Basically, that means four state-owned refineries -Indian Oil Corporation, Bharat Petroleum Corporationand Hindusthan Petroleum Corporation. Oil marketing companies will be allowed to only pass a portion of their increased costs as inflation is already fuelling concern among investors.

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At the current value of the rupee, analysts are pegging the under-recoveries (losses due to selling produces at subsidised prices) at around Rs 1,80,000 crore. With the government is yet to pay any of those under-recoveries, oil companies have been forced to take short-term loans.

Worse, the government is already hinting at calling a halt to providing further subsidies. In such a scenario, Moody’s says the credit rating of oil companies, especially IOC, could come under pressure.

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Other companies on the list include:

Tata Steel: The primary issue for this company is the debt ittook for acquiring its UK arm, which has become much more expensive.In fact, the debt of the UK arm consists of 50 percent of Tata Steel’s total debt.

Until March 2011, almost one-fourth of the debt of its Indian operations also remained unhedged against any fluctuation in currency, something which will have a negative impact for the company, Moody’s said.In addition, 60 percent of the raw materials used by the Indian operations of Tata Steel are imported, but its earns only 7 percent of revenues from exports.

Tata Motors: It will alsonot benefit from its exports much because it imports a key component - steel - which has become more expensive now.

Tata Chemicals: This company remains vulnerable as its cost of imported phosphate goes up enormously.

Reliance Industries: It isthe biggest importer of energy in the country after IOC and India’slargest exporter. Its biggest threat is its foreign debt: nearly 80 percent of the company’s standalone debt is denominated in US dollars.

The company has an unhedged foreign currency exposure of Rs 65,800 crore as on 31 March, Moody’s noted.

And the winners are…

Among the winners are technology companies that derive revenues from exports and have a rupee-denominated cost base. However, over time, domestic wage inflation could offset the advantage.

Plus, not all companies benefit equally. Most of the staff of TCS, for example, is based abroad, so it won’t gain completely from the rupee’s slide. On the other hand, the company has no foreign debt.However, its tightly hedged positions are likely to offset most of the gains from currency depreciation.

NTPC: This regulated power company islargely protected as it can pass on extra costs (including those triggered by currency fluctuations) to consumers.

**Tata Power:**It might also not lose heavily, because it will be able to pass on higher costs due to rupee depreciation to customers. Its own mine in Indonesia acts as a natural hedge as well.

Vedanta: The holding company for Indian miners, Sterlite and Sesa Goa, reports in dollars from its headquarters in London. Revenues in rupees are linked to commodity prices on the London Metals Exchange (given in dollars). Moody’s notes, “To that extent, Vedanta gains from a weakened rupee because most of its expenditure comes in the now-lower domestic currency.”