Most Companies Can Withstand The Ongoing Rupee Fall
Most domestic corporates, barring a few, can withstand the ongoing rupee plunge as the share of their dollar-linked earnings largely balances the share of their debt repayable in dollars, according to a Standard & Poor’s report.
“A few of them will be negatively affected, but not severe enough to impact their credit ratings,” it said.
The rupee fell beyond 70 a dollar, closing at an all-time low yesterday at 70.15, while today the market was closed. So far, the rupee has lost close to 9 percent, making it one of the worst performers among large currencies.
“A weaker and more volatile rupee would likely result in increased hedging costs for companies, while the same may benefit exporters,” an S&P report said today.
The report said it expects the credit profile of rated infrastructure companies to be largely protected from the current bout of rupee depreciation.
While regulated utilities like NTPC Ltd., Power Grid Corporation of India Ltd. and NHPC Ltd. enjoy cost pass-through for currency depreciation or hedging costs, unregulated power companies are protected due to hedged forex bonds. But Delhi airport and Hyderabad airport will benefit from forex earnings as well as hedging. “We believe the impact on the infrastructure sector will be limited.”
In other cases, such as for Tata Motors Ltd., the share of foreign currency in debt is broadly comparable to the share of foreign currency in earnings.
“We believe the debt-laden telecom sector can face further stress due to limited foreign exchange earnings combined with foreign currency debt. Bharti Airtel Ltd.’s share of forex earnings is only 20 percent, whereas its share of forex-denominated debt is about 50 percent,” it said. A sustained depreciation of the rupee can thereby negatively affect its leverage.
The report also said Reliance Industries Ltd. can see rising leverage as 75 percent of its debt is dollar-denominated, while 85 percent of its earnings are in dollars. However, its entire cash balance is denominated in the rupee.
“Thus, a depreciation in the value of those cash balances feeds through to leverage calculations,” the report warned.
Oil companies like Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. will see a big boost to their profit since they will be able to sell crude on dollar benchmark-linked prices. Similar will be the case of software exporters like Tata Consultancy Services Ltd., Infosys Ltd. and Wipro Ltd.