Mark-to-market losses and higher debt servicing costs are likely to be key pressure points in the near-term

The steep depreciation in value of rupee against the dollar is expected to severely impact Indian companies, considering the large foreign currency debt on their books and only partial hedging in place to upset the currency fluctuation.

In a double disadvantage, the rupee’s depreciation will lift the input costs across many sectors amidst weak demand as reflected in low double-digit top line growth expected in 2013-14, Crisil Research said in a report.

Exporters are unlikely to benefit significantly as clients could seek to renegotiate contracts, it said.

“We expect the rupee to strengthen from its current levels, but the 2013-14 average will still be 5-8 per cent weaker than the 2012-13 average. Mark-to-market losses and higher debt servicing costs are likely to be key pressure points in the near-term,” Crisil said.

“For companies in the CNX Nifty (excluding banking and financial services), around 40 per cent of debt is denominated in foreign currency. In total, corporate India had forex debt outstanding of over $200 billion as of March 2013, of which close to 45 per cent is short-term debt.

Moreover, only half their forex exposure is hedged. Persistent weakness in the rupee and heightened volatility has reduced the benefits of borrowing overseas,” said Mukesh Agarwal, President, Crisil Research.

Sectors that will be negatively impacted include automobiles, auto components, airlines, consumer durables, oil marketing companies and fertilisers.

A weak rupee will also increase under-recoveries of OMCs (oil marketing companies) which could touch Rs.1,05,000 crore in 2013-14.

Crisil said the upside for export-oriented companies would be limited and Tier-1 IT services companies were expected to report a 50-100 basis points improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) margins due to a pick-up in business momentum and utilisation levels.

Others to benefit include pharmaceutical and readymade garment exporters, crude oil producers and pure-play refineries.

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