IT and Pharma sector most sensitivity to currency movement: Ind-Ra
India Ratings & Research (Ind-Ra), a part of Fitch Group, on Thursday said that the margin sensitivity of BSE 500 corporates (excluding banking and financial services) to foreign exchange fluctuations has shown a rising trend since FY07-FY13. This may be attributed to the rising level of dollarisation of the income statements and balance sheets of Indian corporates since 2007. “The two sectors with the highest positive sensitivity to rupee depreciation are information technology (IT) and pharmaceuticals,” Ind-Ra said in a press release. For every 1 per cent rupee depreciation on a sustained basis, the median expansion of EBITDA (in INR terms) for IT companies has been in the range of 2.7 per cent to 2.9 per cent while for the pharmaceutical sector it has been 1.2 per cent-1.5 per cent over FY12-FY13. Consumer durables has exhibited the highest negative sensitivity in the range of 1.2 per cent to 2 per cent in case of a 1 per cent INR depreciation, due to major FC outflows on imports of electrical components. Other corporates in sectors such as fertilisers, chemicals, and automotive suppliers have displayed a negative sensitivity change to rupee depreciation, with their EBITDA getting affected to the extent of 0.5 per cent to 1.4 per cent in FY13 for 1 per cent of INR depreciation. However, the margins of these sectors would benefit the most in case the rupee appreciates. Over half of these corporates have operating structures which make them net FC spenders. These corporates, account for around 70 per cent of the balance sheet debt (as of FY13) of BSE 500 corporates. On an average, these FC spenders are expected to suffer operating margin deterioration of 1.3 per cent in EBITDA (in INR terms) for every 1 per cent depreciation in the Indian rupee against the US dollar. The challenge for these net FC spenders is aggravated since 17 per cent of their aggregate debt is foreign currency debt. The possible imbalance between currency of debt funding and operating cost structure may be reflected in the fact that 76 per cent of the total FC debt (often unhedged) of BSE 500 corporates (as of FY13) lies with net FC spenders.
India Ratings & Research (Ind-Ra), a part of Fitch Group, on Thursday said that the margin sensitivity of BSE 500 corporates (excluding banking and financial services) to foreign exchange fluctuations has shown a rising trend since FY07-FY13. This may be attributed to the rising level of dollarisation of the income statements and balance sheets of Indian corporates since 2007. “The two sectors with the highest positive sensitivity to rupee depreciation are information technology (IT) and pharmaceuticals,” Ind-Ra said in a press release. For every 1 per cent rupee depreciation on a sustained basis, the median expansion of EBITDA (in INR terms) for IT companies has been in the range of 2.7 per cent to 2.9 per cent while for the pharmaceutical sector it has been 1.2 per cent-1.5 per cent over FY12-FY13. Consumer durables has exhibited the highest negative sensitivity in the range of 1.2 per cent to 2 per cent in case of a 1 per cent INR depreciation, due to major FC outflows on imports of electrical components. Other corporates in sectors such as fertilisers, chemicals, and automotive suppliers have displayed a negative sensitivity change to rupee depreciation, with their EBITDA getting affected to the extent of 0.5 per cent to 1.4 per cent in FY13 for 1 per cent of INR depreciation. However, the margins of these sectors would benefit the most in case the rupee appreciates. Over half of these corporates have operating structures which make them net FC spenders. These corporates, account for around 70 per cent of the balance sheet debt (as of FY13) of BSE 500 corporates. On an average, these FC spenders are expected to suffer operating margin deterioration of 1.3 per cent in EBITDA (in INR terms) for every 1 per cent depreciation in the Indian rupee against the US dollar. The challenge for these net FC spenders is aggravated since 17 per cent of their aggregate debt is foreign currency debt. The possible imbalance between currency of debt funding and operating cost structure may be reflected in the fact that 76 per cent of the total FC debt (often unhedged) of BSE 500 corporates (as of FY13) lies with net FC spenders.
