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Record-low rupee: Mixed bag for business houses with diverse interests

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MUMBAI: For India’s diversified enterprises, the rupee touching a record low against the dollar is a double-edged sword. This is because businesses that are majorly into exports — for example, IT services, textiles, agricultural produce and engineering goods — will fetch better value for their products & services in overseas markets pegged to the American currency. But businesses that depend on imported raw materials will see production costs going up. Also, businesses that earn revenue in Indian rupees and rely heavily on dollar debt to finance operations will face heightened risk of default on borrowings.
However, several large companies have protections to limit the effect of the rupee’s weakness on their cash flows and leverage, according to ratings firm Moody’s. They have hedged their exposure to dollar debt and raw material import costs against export earnings and other financial hedges, it said. While export-oriented businesses will benefit from the rupee’s slide as their products and services will become more competitive in the global market, the benefit will be limited amid the current macroeconomic environment of the Russia-Ukraine war, inflation and tightening of global liquidity, among other factors.
Tata Group company Voltas will see an impact on profitability as it imports certain raw materials in dollars. But, the company maintains at least 25% of its exposure hedged. Further, earnings from the Middle East and Mozambique projects acts as a natural hedge against exchange rate volatility, according to Sharekhan by BNP Paribas VP (research) Sanjeev Hota. With regard to another Tata entity, Tata Motors, Hota said a 1% depreciation in Indian currency will reduce its operating profit by 7.5%, or Rs 499 crore, this fiscal because of its dollar-denominated debt. While TCS, which has no dollar debt, is likely to witness cross-currency headwinds on its dollar revenue growth this fiscal based on the sharp resurgence of the greenback against other major global currencies. Hota expects a marginal benefit to reflect on TCS’s FY23 margins on account of the rupee depreciation.
In the case of Aditya Birla Group companies, Aditya Birla Fashion & Retail and Grasim, a 5% depreciation in Indian currency will reduce their operating profits by about 1% this fiscal. “The impact is minimal on Grasim as its foreign currency loans have been fully hedged for foreign exchange and interest rate fluctuation by way of currency and interest rate swaps and long-term forward contracts,” Hota said.

On the other hand, RIL will see its operating profit increase by 1% or Rs 1,300 crore this fiscal for every Re 1 depreciation as the margins of its oil-to-chemicals and upstream units are pegged in dollar.
Profit of JSW Steel is expected to fall by 3% or Rs 659 crore for every 1% fall in the Indian currency as certain raw materials and 57% of its consolidated financial liabilities are in US dollar terms, while domestic steel volumes are denominated in local currency. “Thus the rupee-dollar rate of Rs 80 will have a negative impact of Rs 3,300 crore on JSW Steel’s consolidated profit,” Hota said.




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