The recent depreciation of the rupee against the dollar has resulted in foreign exchange losses worth Rs.48 billion in the July-September quarter for Nifty companies — wiping off close to 8 per cent of their profit before tax. This represents one of the highest aggregate forex losses in a single quarter, given the sharp rupee depreciation and nearly three-fold rise in foreign debt of these companies over the past five years. With the rupee continuing to depreciate against the dollar, Crisil Research expects foreign exchange losses of these companies to remain high at around Rs.35-40 billion in the October-December quarter.
In the July-December period, the rupee has depreciated by nearly 18 per cent against the dollar. “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, Crisil. A Crisil Research analysis of the effect of the rupee's steep depreciation on Nifty companies (42 companies considered, excluding financial services companies) revealed that, at an aggregate level, these companies reported foreign exchange losses of about Rs.48 billion in the July-September quarter — which was around 8 per cent of their total PBT of Rs.572 billion. The foremost reason for these foreign exchange losses is the high level 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. 1.5 trillion, which 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.
“Due to a further 8 per cent depreciation of the rupee against the dollar in this (October-December) quarter, these companies are likely to report further foreign exchange losses of nearly Rs.35-40 billion in the quarter, assuming there are no major changes in hedging policies of individual companies,” said Prasad Koparkar, Head-Industry and Customised Research, Crisil Research.
At a sectoral level, sectors such as oil refining & marketing, telecom, and steel have high gearing ratios and over one-fourth of the debt of companies in these sectors is foreign currency denominated. Moreover, in case of oil refining & marketing, a significant portion of the inputs, that is, 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.
