Rising Re skews corporate results

The incessant rise of the rupee, which has dented the bottom line of export-oriented companies, has another side to it. With the Indian currency's value against the dollar moving from 44 on March 30 this year to under 40 now, a bunch of companies that has received a boost.

The corporate results of the second quarter make a telling revelation. As the rupee rose 10 per cent against the dollar, net import-based companies reported nearly 36 per cent growth in net profit. Net exporters, on the other hand, had to settle for only 10.61 per cent.

The role played by exchange rate gains can be gauged from the fact that the 16.95 per cent sales growth of net importing companies during the period was only a shade lower than that of net exporters at 17.15.

Oil refining and marketing companies "� net importers "� are excluded from this study owing to government controls on oil prices.

The net importing companies managed a healthy 34.4 per cent growth in net profit in the first six months of this financial year, while net exporters could only eke out 21.40 per cent.

Again, sales growth of net importing companies (19.09 per cent) was not much different from that of net exporters (18.4 per cent). The cost of raw materials rose 16.56 per cent for for importers compared with 17.06 per cent for net exporters.

This is a far cry from the scenario in the earlier part of this decade. As the rupee plummeted from under 28 to the dollar in 1999-2000 to above 45 in 2006-2007, net exporters hogged the limelight with sterling profit growth.

Both net importers as well as exporters recorded lower growth in sales and profits in the first half of 2006-07 compared with the second half.

Expectedly, companies that import a lot of raw material benefited the most from the rupee appreciation. The major beneficiaries include Sterlite Industries, Hindalco, Steel Authority of India, Tata Steel, Sterlite Energy, Welspun Gujarat and Maruti Suzuki India.

Sterlite Industries, which imports all the raw materials for manufacturing aluminium, copper and zinc, saved Rs 287.17 crore in the first half.

Thanks to this saving, the company's first half net profit increased by Rs 476 crore in spite of the decline in the prices of copper, aluminium and zinc by around 5-10 per cent.

Hindalco lowered its raw material consumption by Rs 840 crore and posted a marginal rise of just under 4 per cent in net profit to Rs 47 crore in the first half.

The fall in the company's product prices clipped its operating margin for aluminium from 39.5 per cent in the first half of 2006-07 to 36.86 per cent in the first half of this financial year.

The rupee appreciation has put the brakes on the profit growth of auto ancillaries, software and textile companies. Front-line software companies, which generate over 95 per cent of their revenues from overseas, suffered the most.

The first half revenue growth rate of software companies declined from 35.2 per cent in the second half of 2006-07 to 25.4 per cent in the first half of 2007-08. The net profit growth rate declined from 31.1 per cent to 28.4 per cent.