Winners and losers: Not everyone in India Inc is unhappy with rupee free-fall

Even though the Reserve Bank of India has left no stone unturned to control the falling rupee, the Indian currency is hitting new lows every day and even breached the 64-mark on Tuesday.

Today, the rupee has pulled back from the record lows to 63.39, after the RBI announced an open market purchase of bonds, which boosted the bond prices and equity markets. But the upmove is unlikely to last long. Deutsche Bank, in fact, sees the currency at 70 in a month.

The depreciating rupee has raised spectre of an inflation spiral as imports of goods, including oil, become costlier. A higher inflation also means the higher borrowing costs are here to stay. The biggest concern with the rupee now is that it is not only the domestic fundamentals like the wide CAD that has caused the spiral. The global situation is also contributing as much. But this is not in the hands of the Indian authorities.

 Winners and losers: Not everyone in India Inc is unhappy with rupee free-fall

Between 40 percent and 70 percent of the loans taken out by the country's 10 most highly leveraged business groups are in foreign currency. Reuters

The weak rupee is also playing havoc with corporates which have taken on huge forex debt.

Three such companies are Bharti Airtel, Idea Cellular and Reliance Communications, which had resorted to overseas borrowing to meet their capital expenditure needs. The net worth of these telecom majorshas witnessed significant erosion as the declining rupee has increased their dollar-denominated debt, the cost of servicing this debt and also charges paid to overseas vendors for services.

The three telecom biggies could have seen their dollar debt rise by Rs 7,300-Rs 7,500 crore from their value by June-end, according to a report in the Economic Times.

"At the current rupee-level of over 63 to a dollar, the value of Bharti Airtel's debt would have gone up by Rs 5,000 crore from what it was by June-end. Similarly, Reliance Communications' debt would be higher by Rs 1,500 crore and it would be Rs 800 crore- Rs 1,000 crore more for Idea," the report said.

The continued rupee fall will only make this pain worse since most of their foreign debt is unhedged which not only impacts their net worth but also amounts to massive forex losses.

Not just telecom companies, a weakening rupee will also impact the credit quality of state-owned oil marketing and upstream oil companies during the current fiscal if the government continues to ask them to share a higher fuel subsidy burden as it did in April-June.

"We now expect fuel subsidies for FY 2014 at Rs 1.4-1.5 lakh crore, up from the Rs 1.3 lakh crore expected in June 2013," said Vikas Halan, Moody's Vice President and Senior Analyst.

The report cites the ongoing depreciation of the Indian rupee and the rising crude oil prices as the reasons for the upward revision of its fuel subsidy estimate for 2013-14.

With Brent crude at around $110 a barrel, its impact on inflation and Indian economy is still not being taking into account.

For state-run upstream oil companies ONGC and Oil India, the subsidy burden will nullify the positives from a dollar-pegged pricing regime they enjoy. However, their private sector peers like Reliance Industries and Cairn India are expected to make windfall gains since they sell their fuel in dollar-linked prices,according to another ET report.

Formany companies including Adani Power, Lanco and Reliance Power, the falling currency is a double whammy. They have massive forex loans with no forward cover and low profitability.

In fact, the cumulative debt of India Inc's top 10 business groups, including Vedanta, Essar, Jaypee, GMR, GVK, JSW, Lanco and Videocon, has risen 15 percent to Rs 6.4 lakh crore in the current fiscal because of the rupee's depreciation and delays in projects being undertaken by many of them, Credit Suisse had said last week.

The report also warned of additional asset quality stress of banks because of growing debt levels of big business houses.

"Many corporates' loans are 40-70% foreign currency denominated; therefore, the sharp depreciation in the rupee is adding to their debt burden. Adani Enterprise and Reliance Comm have the largest percentage of borrowings through forex loans," it said.

And the increase in these liabilities because of currency weakness since April is already equivalent to 35 percent to 153 percent of last year's earnings.

The worry is that trends of recent weeks are only likely to worsen, with further falls in the rupee expected and recent spikes in bond yields causing particular problems for those companies needing to refinance debt this year.

Even the top echelons of India Inc such as ITC, Infosys, Tata Motors, Wipro, Bajaj Auto, Bhel etc gain from a weak rupee because their total forex earnings are greater than their forex spends, says this Times of India report.

Even though India Inc has repeatedly slammed the government for trying to manage the Indian currency, the fact is sectors like IT, Pharma, textiles and automobiles benefit from a weak rupee since they are all net foreign exchange earners. However, chemicals, paper, auto ancillaries, power and steel do suffer because the smaller firms have exposure to forex risk but limited expertise to hedge against the rising dollar.

And not just corproate India, even MNCs are the bearing the brunt of a weak rupee.For US company Cummins, second-quarter sales dropped 12 percent versus a year earlier due to a weak market for trucks and the impact of the rupee's depreciation. Even Coca-Cola will have to revise their Indian revenue targets or push their Indian arms to sweat it out.

According to a Times of India report, Pernod Ricard, the world's second-biggest drinks company, is seeing slowing growth in emerging markets. India is the fourth largest market for the maker of Royal Stag and Blender's Pride whiskies.When the rupee is converted into a foreign currency, their market size, investment vale and profits shrift.

In fact even imported liqour prices have shot up by 30 percent due to the rupee free fall.

"Every Re 1 increase in the import price hurts companies by Rs 2.5. Worse still, since in many states price revisions happen only once a year, the company will have to absorb the price hike until the next revision cycle," a ToI report said, quoting an industry observer.

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Updated Date: Dec 20, 2014 21:50:03 IST