Rupee appreciation is expected to boost second quarter result of foreign debt ridden Indian corporates who will cut on their provisioning for mark to market losses arising from foreign exchange movement. Appreciation of the rupee against the key foreign currencies is also expected to help them with lower cash out flow for repayment of loans due in the quarter or servicing interest .
“The benefit of the rupee appreciation on corporate results will be largely seen by infrastructure companies as they have large foreign borrowing,” said Prabal Banerjee, chief financial officer at Adani Power.
Financial research firm Capitaline’s figures show that 167 Indian companies reported Rs13,067 crore of loss on foreign exchange transactions in the first quarter ending June. This includes MTM losses on debt besides foreign exchange losses from other transactions such as higher out flow for bank loans.
As per leading global accountancy firm Pricewater House, AS 11 (the accounting standard practiced by most of the Indian companies) provides option for calculation of MTM losses on long term debts in the balance sheet and not in the profit and loss account. Any debt more than a year is considered long term debt fort this calculation.
However, all the companies have to record their MTM losses in quarterly results for foreign debt less than a year. This basically means re-stating the loans at the closing exchange rate at the end of the quarter and book loss as per the depreciation in the value of the rupee since the debt was incurred. “Less than a year loans are usually working capital loans or export credits,” said P W Kumar Dasgupta, partner with Pricewater House.
These losses are calculated on the value of the rupee at the end of quarter every quarter. Rupee had depreciated 9.36 per cent to 55.64 against the US dollar at the end of the quarter ending June from 50.88 at the end of March quarter. This led to huge provisioning for mark to market losses by the Indian companies.
Eventually the rupee has appreciated by 4.99 per cent to 52.86 against the US dollar at the end of quarter ending September and this is expected to boost the results of the corporates as their provisioning for mark to market losses will come down.
“There will definitely be a gain because of the rupee appreciation but I can not quantify that,” said P K Goyal, chief financial officer at India’s largest refiner Indian Oil Corporation (IOCL). The company had reported the highest Rs 3187 crore of losses attributed to foreign exchange transactions including MTM losses. Other corporate who reported huge foreign exchange losses are IOCL's peer Bharat Petroleum (Rs 1611 crore), pharmaceutical major Ranbaxy Laboratories (Rs849.79 crore), steel producer JSW Steel (Rs 594.8 crore).
