Rupee fall to hit power companies hard

While many India Inc companies like Reliance Industries are rejoicing at the prospects of the rupee falling further due to rising exports, other companies which are importing raw materials like coal and oil are set for a big hole in their bottomline with the Indian currency's fall against the dollar.

The rupee breaching the 58 to a dollar will negatively impact companies like Adani Power and Tata Power, but India's largest corporate Reliance Industries and ONGC will be the big gainers.

Reliance Industries chairman Mukesh Ambani recently said the company has achieved its highest ever exports of Rs  2,39,226 crore (Rs 2.39 trillion) to 116 countries during the year, accounting for 64 per cent of its turnover. Besides, he said, Reliance continues to be India's largest exporter now accounting for 14 per cent of the total exports from India.

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Reliance insiders say the rupee fall will be a big bonanza to them as Jamnagar refinery complex had its largest exports of 41.2 million metric tonnes valued at over $39 billion in the last fiscal. The rupee has already depreciated by 30 per cent in the last two years thus giving a big boost to Reliance's bottomline.

Besides, as both Reliance and India's biggest oil and gas producer ONGC bill their customers in the power and fertiliser companies in India in the US currency, any fall in rupee's value gives both companies a windfall profit. But it will be companies like Adani Power, Tata Power and Reliance Power - which fuel their power stations with imported coal - at the receiving end of the falling rupee.

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A Tata Power official said they have already hedged their position and do not expect any increased negative impact on its profitability. CFOs say they are now bracing for the rupee falling further to Rs 60 and Rs 65 versus dollar by December this year.

"The Indian currency will remain on weaker ground. First, Indian inflation is about 7 to 8 per cent whereas US inflation is benign at around 1 per cent. Hence, it is 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.

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From 58.16 level today, due to reaction from government and the RBI, there may be short term reversal of Rupee from this level, but in long run rupee will gradually move southbound since weak rupee will add to negative implication from cost of import and negatively affect CAD," says Banerji.

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

"But certainly rate of depreciation will be sharper than rate of appreciation and overall trend would be a weakening rupee," Banerji said.

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Pharmaceutical companies like Cipla, Wockhardt and Lupin are earning a substantial amount of their revenues from abroad. In fact, Wockhardt's 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 upto 80 per cent in the next two to three years.

With this shift in strategy from local markets to foreign markets, all the local pharma companies will benefit from the rupee depreciation.

Consumer durable to oil giant, Videocon Industries is also shifting its focus from India to Brazil where it is expecting its oil assets to start production in few years and revenues will start flowing in dollars.