 "Guess who is laughing at the rupee's fall and why?")
Not everybody is worried with the rupee touching new lows every hour. Cairn India is laughing its way to the bank and with every rupee fall the laugh gets louder.
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Though Cairn India sells its produce (Crude oil) in India, its revenue is booked in dollars. Every change in the rupee impacts the company’s earning by 2.4 percent. Most of the analyst have pegged their earning estimates based on a rupee-dollar value between 45 and 46 not only for this year but for the next three years, that is till 2014.
Rupee has depreciated from an average of 45.66 in the second quarter to an all-time low of 53.51 today.
There is a difference of Rs 8.5 in the exchange rate based on analyst calculations. Even if we assume an average rate of 51, Cairn India is likely to post around 15 percent higher earnings than analyst estimates.
Importantly, the upgrades, as and when done by analysts, will have to be adjusted to the new rates over the next three years as they build in the new range for the currency.
Apart from the fact that the company books its sales in dollar, Cairn has also kept its cash war chest in dollars. As per a RBS report, the company has most of its net cash balance of Rs 7,130 crore in dollars. The report says that the company has Rs 5,460 crore in dollar deposits, which has been accounted for at a rate of 48.89 at the end of the previous quarter. A 10 percent depreciation in the value of rupee since then would result in a windfall gain of over Rs 350 crore.
Since the company plans to increase its output, rising price of crude oil will only act in its favour for prompting further upgrades.