Re at 68-70/$ may shave-off net importers' 10-30% profit

The negative impact of the rupee depreciation will be limited to the highly leverages net importers, India Ratings and Research (Ind-Ra) said today.
"As the rupee fell past 66.5/USD today, the concerns on the impact of currency depreciation have resurfaced as was the case in H1 of 2013.
"However, the negative impact will be limited to highly leveraged net importers, some of whom, because of their cost-structure, exhibit a high sensitivity to INR depreciation," Ind-Ra said in a statement.
A one per cent depreciation in the rupee value is expected to reduce the absolute EBIDTA of net importers by 0.19 per cent (median), it added.

Ind-Ra said it remains cautious on the credit profile of corporates which are highly leveraged and are highly sensitive to rupee depreciation.
These corporates are net importers and a one per cent rupee depreciation on a sustained basis may reduce their absolute EBITDA by one per cent to well over five per cent, it said.

"Particularly affected would be highly leveraged corporates in the sectors such as fertiliser, consumer durable, chemicals, metals & mining and airlines.
"An INR rate of 68-70/USD on a sustained basis may reduce their absolute EBITDA by 10-30 per cent over their FY15 levels," it added.

The current pressure in the rupee may be attributable, among other things, to selling pressure on emerging market equities, in part triggered by the sell-off of Chinese equity by global investors, the report said.
It said both the currency strength and market returns may be attributable in part to the incremental improvement in the economy as perceived by market.
However, it may also imply that in the event some FIIs sell off Indian equities the rupee may come under pressure, even temporarily, it added.
Given the commodity down-cycle and low level of capex activity, thereby reducing capital goods imports, India's current deficit is firmly in check, the ratings agency said.

In addition, the country has a solid real interest rate. In FY14, India's real interest was 6.2 per cent, it added.
"Given some of the fundamental strengths of the Indian currency, the agency does not expect the depreciation to be sustained even if the rupee depreciates further due to the purely tactical reason of an equity market sell-off," it said.