Rupee free fall: Importer's worry, exporter's euphoria

Our Bureaus | Updated on March 12, 2018


Difficult to formulate long-term policy, say corporates

The rupee's recent plummeting has seen exporters thanking their various Gods, even as importers are gnashing their teeth. Import dependent firms like steel, coal and oil marketing firms face hugely higher costs now.

But everyone is keeping a stiff upper lip. Most firms Business Line spoke to – even those holding large dollar loans – insisted that the medium-term and long-term outlook for the Indian currency remained bright.

Gainers' goodies

Export focussed IT firms like HCL Tech said that as a thumb rule, every one percentage point change in the rupee translates into 30 basis points impact on their operating margins.

“Rupee depreciation is positive for the IT industry. As a policy, we hedge up to one year going forward and as of June 2011, our hedge forward rate is Rs 47 and in range options we are between Rs 46 and Rs 48,” HCL Technologies CFO, Mr Anil Chanana, said.

HCL Tech says its hedge positions remains within the range of 20-40 per cent of net inflows expected in the next 12 months.

MindTree CFO, Mr Rostow Ravanan, said, “We have a balanced hedging policy, under which we hedge 50 per cent of our forecasted cash flows on a rolling 12-month basis. This balances our risk/reward in times like this when there are huge uncertainties in the market.”

Losers' lament

Steelmakers who depend on coking coal are quaking at their import bill as the rupee weakens. But that could get offset by the softening input prices of coking coal.

They say the rupee has weakened by 11.4 per cent against the dollar since the beginning of this quarter while coking coal prices have softened by 15-40 per cent for various grades this quarter.

“We will be definitely impacted by the forex volatility. The recession may be a temporary phenomenon. The long-term hedging rates do not suggest this sort of rates prevailing for long. Hedge premiums for long-term tenure of five years have come down to 3.5 per cent from above 5 per cent,” said Mr C.S. Verma, Chairman, SAIL.

Meanwhile, companies in the power sector have been mostly floating tenders to procure thermal coal for the whole year. Now, importers are looking to float tenders in parts – on quarterly or half yearly basis.

Take Coal India, which is in the process of tying up a 10-year pact to import thermal coal from global suppliers.

It has incorporated a provision in the pact whereby coal prices are to be revised every six months, while maintaining the offered discount rate over the average of Australian and South African index prices.

Borrowers' bother

For those with large dollar borrowings, it is a time to wait and watch. As of June 2011, SAIL's borrowing stood at Rs 21,175.80 crore of which forex loans were about Rs 892 crore. It had an import bill of Rs 15,540 crore on March 31, 2011. The company typically resorts to short-term overseas borrowings to cover its import bill.

“We will be cautious on our forex borrowings and may dip into our cash reserves to meet the requirements,” Mr Verma said.

For Godrej Consumer Products Ltd (GCPL), the biggest impact of current volatility is in its exposures to dollar loans taken for funding acquisitions overseas.

“As far as our loans are concerned, we have a five- to six-year repayment horizon, though short-term obligations we cover from time to time, so we are not unduly worried, said Mr P. Ganesh, Executive Vice-President of Finance at GCPL. He thinks the current depreciation is “a short-term phenomenon”.

Strategy stumbles

Currency volatility plays havoc with balance sheets. So most corporates have a forex committee to keep an eye on fluctuations. But they say it is impossible to formulate a long-term strategy.

MindTree's, Mr Ravanan, believes that the global currency markets are and will continue to witness high volatility. “It is difficult to formulate any long-term strategy to handle this currency volatility,” he says.

SAIL's Mr Verma echoes this, “There cannot be any strategy to deal with the forex volatility as we have to make dollar payments on a monthly basis.”

Given the volatility, by and large, most corporates preferred not to rely too much on hedging. As Mr Ravanan explained, “Hedging is always on a smaller portion of overall revenue,” adding that the company will get benefit of the Rupee depreciation on unhedged receivables.

Published on September 25, 2011

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