Falling rupee: Joy for some firms, sorrow for others

Companies that import raw materials like coal might take a hit

While several export-oriented Indian companies such as Cipla and Reliance Industries Ltd (RIL) are rejoicing at the prospects of the rupee falling further, others that are importing raw materials such as coal and oil might see a big hole in their bottom line.

RIL chairman Mukesh Ambani recently said the company had achieved its highest exports of Rs 2.39 lakh crore to 116 countries last year, accounting for 64 per cent of its turnover. Besides, RIL continues to be India's largest exporter, accounting for 14 per cent of the country's total exports, he added.

RIL insiders say the rupee fall will be a big bonanza for the company. Its Jamnagar refinery complex had exported goods valued at over $39 billion last financial year. The rupee has already depreciated by 30 per cent in the last two years, thus giving a boost to RIL's net profit.

As RIL and state-run Oil and Natural Gas Corp (ONGC) bill their customers in the power and fertiliser sector in the US currency, any fall in the rupee's value gives them more profit.

However, power producers Adani Power, Tata Power and Reliance Power, which fuel their plants with imported coal, are at the receiving end as the rupee breached the 58-mark today against the dollar. A Tata Power official said the company had already hedged its position and did not expect any increased negative impact on profitability.

Indian companies that source raw materials locally but where prices are linked to international commodity rates will also feel the pinch. For instance, NMDC benchmarks domestic iron prices to international prices. Hence, the cost of local Indian steel companies sourcing from NMDC will go up.

Chief financial officers say they are now bracing for the rupee falling further to Rs 60 and Rs 65 versus the dollar by December.

"The Indian currency will remain on a weaker ground. First, Indian inflation is higher, compared to the US' one per cent. Hence, it's natural that differential inflation has to get reflected in exchange rate through real effective exchange rate, which is gradually happening," says Pranab Banerji, head of international finance at Essar group. "From 58.14 level today, there may be a short-term reversal of the rupee, but in the long run, the rupee will gradually move southbound."

The good news is that Indian exporters will be fiercely competitive in the global market due to such a depreciation, which will spurt export growth and as a consequence, the currency should rebound to certain extent.

Pharmaceutical companies Cipla, Wockhardt and Lupin are earning a substantial amount of their revenues from abroad. In fact, Wockhardt earns 80 per cent of its revenues from overseas, while Cipla is earning close to 55 per cent of its revenues from abroad and expecting it to go up to 80 per cent in two-three years.