Weak rupee takes its toll on cos with huge foreign debt

The planetary economical situation is opening to measurement heavy connected India Inc���s equilibrium sheet, courtesy the depreciating rupee. While a weakening rupee mightiness bring cheer to export-oriented sectors specified arsenic IT and textiles, it has pushed up the overseas speech liabilities of Indian companies.

Accounting rules, called AS-11 provisions, marque it mandatory for companies to marque mark-to-market provisions successful their nett & nonaccomplishment accounts for immoderate changes successful overseas currency loans. The worst deed person been those companies that predominantly service the home marketplace and opted for overseas currency loans to concern their maturation plans.

According to an investigation by ETIG, the profitability of companies volition beryllium dented by people to marketplace (MTM) losses. Tata Steel whitethorn study a forex nonaccomplishment of astir Rs 344 crore, whereas Tata Motors could instrumentality a deed of Rs 311 crore. Tata Chemicals, which took a overseas currency indebtedness of $475 cardinal to money its overseas acquisitions, is estimated to study a forex nonaccomplishment of Rs 187 crore. Ranbaxy, JSW Steel and Firstsource Solutions volition suffer Rs 100 crore and Rs 400 crore each. The database of companies is not exhaustive arsenic an estimated twelve companies raised forex indebtedness past year.

Thankfully, this is lone an accounting introduction and does not impact the currency flows. However, it is apt to beryllium work negatively by the banal market. Market participants actively way companies��� nett profits and immoderate adverse improvement does impact valuations. The rupee had positively impacted astir of the supra companies till past year, but it has depreciated by implicit 9% successful the 4th ended September 2008.

When the rupee depreciates, the worth of overseas currency liability denominated successful rupee presumption increases and vice versa. According to AS-11 stipulations, an summation successful liability should beryllium reflected successful the quarterly nett and nonaccomplishment connection and volition construe into little firm profits. Most companies are focused connected the home marketplace and are truthful improbable to payment from a weakening rupee.

The falling rupee volition severely impact the tiny companies, whereas the large ones volition beryllium impacted lone moderately. Firstsource Solutions whitethorn study a nett loss, portion Tata Steel mightiness spot a 100 ground points diminution successful nett net borderline connected relationship of forex losses. To enactment things successful perspective, astir companies volition acquisition a 10-50% deed connected their operating profits.

Companies specified arsenic Reliance Communication, Reliance Industries and Bharti Airtel travel schedule-VI of the Companies Act, alternatively of AS-11 and are truthful improbable to spot an interaction connected their quarterly nett and nonaccomplishment statements. The operating profits of the 2 Reliance companies would person been little by astir Rs 800-900 crore if they had subscribed to the AS11 norms.

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