This represents one of the highest aggregate forex losses in a single quarter, given the sharp rupee depreciation and nearly three-fold rise in foreign debt of these companies over the past five years.
With the rupee continuing to depreciate against the dollar, Crisil also expects foreign exchange losses of these companies to remain high at around R3,500-4,000 crore in the October-December quarter.
In the July-December period, the rupee has depreciated by nearly 18 % against the dollar.
Demand for dollars increased due to repayment pressures on private foreign debt and the rising import bill. But supply failed to keep pace as foreign inflows dwindled due to rising risks in the Eurozone. The resultant mismatch led to the sharp fall in the value of the rupee, says Dharmakirti Joshi, chief economist, Crisil.
A Crisil research analysis of the effect of the rupees steep depreciation on Nifty companies (42 companies considered, excluding financial services companies) revealed that at an aggregate level these companies reported foreign exchange losses of about R4,800 crore in the July-September quarter, which was around 8% of their total PBT of R572 billion.
The foremost reason for these foreign exchange losses is the high level of foreign currency debt which needs to be reported using the closing exchange rate. The cumulative foreign currency debt of the Nifty companies considered in the analysis is an estimated R1.5 lakh crore, which is around 24% of their total outstanding debt, as per the latest available company annual reports.
The hedging policy of these companies also plays a role in determining their foreign exchange losses, as the derivative instruments are marked-to-market.
Due to a further 8 % depreciation of the rupee against the dollar in this (October-December) quarter, these companies are likely to report further foreign exchange losses of nearly R3,500-4,000 crore in the quarter, assuming there are no major changes in hedging policies of individual companies, said Prasad Koparkar, head, industry and customised research, Crisil Research.
At a sectoral level, sectors such as oil refining & marketing, telecom, and steel have high gearing ratios and over one-fourth of the debt of companies in these sectors is foreign currency denominated.
Moreover, in case of oil refining and marketing, a significant portion of the inputs, i.e., crude oil, is dollar-denominated, which can magnify the impact of foreign exchange losses.
By contrast, sectors such as IT and pharma, with high exposure to export revenues at around 75 % and 40 % respectively, and low debt levels, are expected to gain from the rupees depreciation.