With the rupee nearing 80 per dollar, companies in import-sensitive sectors remain on edge, as they apprehend that a further input price escalation will erode their margins at a time when a demand slowdown has impaired their ability to raise prices of finished goods.
Senior executives that FE spoke to said companies in sectors — ranging from oil, power and steel to chemicals — are expected to feel the pinch, as imports of commodities like crude oil, coal and chemicals are set to turn more expensive. Some of them were also worried about “imported inflation”, given that India is a net commodity importer. Smaller firms, with limited ability to hedge, are hit harder in times of currency fluctuations than the large ones.
Of course, the latest easing of global oil and other commodity prices will somewhat soften the blow of a weak rupee, they conceded. The magnitude of the impact of the rupee fall on firms, however, varies across sectors, depending on their import reliance. Interestingly, the country’s largest car maker, Maruti Suzuki, sees gains from the rupee movement, as the domestic currency has actually appreciated against the Japanese yen.
However, steam coal import from Indonesia, which makes up roughly a half of India’s total purchases of the commodity from overseas, will cost more. This will feed into electricity rates, said an official with state-run NTPC. However, while the currency depreciation is unlikely to raise the costs for NTPC, which awarded Adani Enterprises contracts worth Rs 8,308 crore last month for 6.25 million tonne of (imported) coal, it may bite into Adani’s margins.
Similarly, while Coal India, which has awarded contracts to Baradaya Energi to source about 6 million tonne of coal, remains insulated as the tenders are priced in the rupee, the supplier is set to take a hit.
Lalit Beriwala, managing director, Shyam Steel, said, the weakening rupee will inflate the landed price of the South African coking coal, which has already doubled to about Rs 24,000 per tonne from a year before. Steel firms may have to fork out 15-18% more for key inputs, with hedging costs, too, going up, he said.
The cost of oil imports by downstream companies like Indian Oil Corporation, BPCL and Reliance Industries will go up. However, upstream oil companies like ONGC may stand to benefit from the rupee fall. As the crude oil is priced in the dollar, the depreciation by every one rupee against the greenback can potentially drive up ONGC’s revenue by about Rs 1,200 crore and profit by about Rs 650 crore annually, according to a company spokesman.
Moreover, the rupee depreciation will likely have a bearing on the recent power ministry directive to blend 10% imported coal to tackle domestic shortage of the raw material.
Natubhai Patel, managing director at Gujarat-based chemicals firm Meghmani Organics, said elevated costs of imports will push up finished product prices as well, even though entire cost increase can’t be passed on to the consumers. Some segments of the pharmaceuticals industry source as much as 60% of their input requirements from abroad. Similarly, the import dependence for inputs in select agro-chemicals segments is 40%, Patel said.
Already, corporate profitability likely dropped 200-300 basis points in the June quarter from a year earlier, according to a Crisil analysis of the financials of over 300 firms (excluding those in the financial services, and oil and gas sectors).
Alok Sahay, secretary general, Indian Steel Association, said, the rupee fall would drive up input costs. However, “there would be no immediate impact on the domestic steel prices, as it comes with a lag of two months or so”.
Companies in some other sectors, where import reliance for inputs is very limited, are not perturbed by the rupee fall.
Shreevar Kheruka, managing director and chief executive, Borosil, said: “I do not see too much of an impact on the manufacturing sector. If anything, a weaker rupee helps exports and combined with the China + 1 factor, I believe this is a large opportunity for the entire manufacturing sector. For Borosil, a weaker rupee can only improve margins, as we manufacture a large chunk of our goods in India and compete with imports from the rest of the world,” Kheruka added.
B Thiagarajan, managing director at Blue Star, said, “Some of the commodity prices are coming down drastically and that will partly offset the impact of the rupee depreciation. I am more worried about inflation than the drop in rupee. We keep 45-day inventory of finished goods in the system, raw material is maintained for three months and we also hedge against currency risks. So, as a manufacturer, these daily changes in currency are not so much of a concern to me,” he added.
Shashank Srivastava, senior executive director (marketing and sales) at Maruti Suzuki India, said: “It also depends on what you are importing and in which currency you are importing. For Maruti, a lot of imports are in yen. Therefore, more than the dollar-rupee rate, it is the yen-rupee rate that matters to us.”
Since the yen has depreciated against the rupee, it has turned out to be ‘beneficial for us’, he added.
Vimal Kejriwal, managing director and chief executive at KEC International, an engineering, procurement and construction firm, said, “For most of the project exporters like us, the fall in rupee would definitely be beneficial. In our case, about 50% of our total revenues are from overseas operations, and in a way, we are not different from an IT company”.
(With inputs from Surya Sarathi Ray and Varun Singh in New Delhi, Nayan Dave in Ahmedabad and Rajesh Kurup in Mumbai)