September 02 : A lot of companies in India pay in foreign currency for importing raw material or pay for interest on their borrowing. A fall in the rupee value hurts them the most. It makes imports costlier and forces companies to pay more interest on loans.
Nine companies with a 23% weight age in the Nifty are adversely impacted by the rupee movement, according to IIFL, a Mumbai-based firm. This means their profits could be hurt. Analysts usually assess the impact on the earnings per share or the net profit per share of a company. A company’s share price usually moves in tandem with its earnings per share.
Here are the top 5 listed companies at a severe disadvantage:
1) Spice Jet and Jet Airways:
Airline companies are the most affected directly by the rupee’s free-fall. For every 10% fall in the rupee, SpiceJet’s earnings per share (EPS) for the current fiscal decreases by a whopping 330%, according to IIFL. Similarly, Jet Airways’ profit too would see a fall of 70%. An airline’s major expense is imported jet fuel. It accounts for half of the operating cost. On the contrary, revenues are mainly in rupees. This makes airline companies exposed to exchange rate fluctuations.
2) Jain Irrigation:
The multi-national irrigation equipment-maker is expected to see a 47% fall in its fiscal year 2013-14 EPS for every 10% fall in the rupee, according to the report by IIFL. The company reported a widening of losses in the first quarter of FY14 due to higher foreign exchange loss despite a 15% rise in revenues.
3) ABB and Siemens:
ABB sees only 15% of its revenues come from outside the country. This means it earns in rupees. According to IIFL, ABB’s EPS will take a hit of 30% every time the rupee falls 10%. Equipment manufacturer Siemens too will be impacted in a similar fashion.
4) Tata Chemicals:
The Tata group company has borrowed Rs 7,500 crore in foreign-currency. This is why the company is also at a disadvantage despite earning nearly half of its revenues in foreign currency. It is also expected to see a 30% fall in FY14 EPS for every 10% fall in the rupee.
A depreciation in rupee means oil imports become costlier. Fuel like petrol and diesel are already sold at a subsidized rate. Any rise in oil prices means further hit to the balance sheets of companies like Hindustan Petroleum. According to the IIFL, HPCL’s profit is likely to fall 29% in FY14 if the rupee depreciation is limited at 10%.