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Currency impact
With c. 7% QoQ weakening of rupee against US$ during the quarter,
Indian pharmaceutical companies are likely to show better margins and
export growth in coming quarters. However, immediate quarter will see
negative impact especially companies that carry large forex hedges
(Ranbaxy) or have considerable foreign liabilities (Aurobindo, Jubilant
Life, Orchid and Strides). Frontline pharma companies have 50-80% of
revenues coming from exports. We see benefit for Dr Reddy’s, Cipla,
Lupin and Sun Pharma that have large exposure to US$. Additionally,
rupee’s depreciation against yen and real will help Lupin and Torrent. We
prefer Dr Reddy’s, Lupin, and Torrent Pharma on back of strong earnings
growth expected over the coming quarters.
Operating earnings benefit from rupee depreciation
q Exports comprise 50-80% of revenues of Indian pharma companies, and
most of the invoices are US$ denominated.
q Rupee has depreciated by c.7% QoQ against the US$ while depreciation
is sharper against currencies like Euro, Yen and Real on a YoY basis.
q One percent depreciation in rupee results in c. 1.3% upgrade in operating
earnings (assuming exports comprise 50% of overall revenues).
Negative impact for companies with hedges/ foreign liabilities
q Companies will large forex hedges or foreign liabilities will see substantial
immediate negative hit due to translation loss (liabilities) or MTM loss.
q Translation losses on FCCB/ECB for Aurobindo, Jubilant Life, Orchid and
Strides will have significant one time negative impact.
q Ranbaxy will be hit due to MTM loss on large outstanding forex hedge.
q While most companies run some hedges to cover 2-6 quarters of export
receivables and will see MTM loss on those, this is neutralized to some
extent by gain on receivables and inventory.
Top picks: Dr Reddy’s, Lupin, and Torrent
q We see benefit for Dr Reddy’s, Cipla, Lupin and Sun Pharma that have
large revenue exposure to US$ and the extent of hedges is reasonable.
q Additionally, rupee’s depreciation against Japanese yen and Brazilian real
will benefit Lupin and Torrent respectively.
q We prefer Dr Reddy’s, Lupin, and Torrent Pharma on back of strong
earnings growth expected over the coming quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Currency impact
With c. 7% QoQ weakening of rupee against US$ during the quarter,
Indian pharmaceutical companies are likely to show better margins and
export growth in coming quarters. However, immediate quarter will see
negative impact especially companies that carry large forex hedges
(Ranbaxy) or have considerable foreign liabilities (Aurobindo, Jubilant
Life, Orchid and Strides). Frontline pharma companies have 50-80% of
revenues coming from exports. We see benefit for Dr Reddy’s, Cipla,
Lupin and Sun Pharma that have large exposure to US$. Additionally,
rupee’s depreciation against yen and real will help Lupin and Torrent. We
prefer Dr Reddy’s, Lupin, and Torrent Pharma on back of strong earnings
growth expected over the coming quarters.
Operating earnings benefit from rupee depreciation
q Exports comprise 50-80% of revenues of Indian pharma companies, and
most of the invoices are US$ denominated.
q Rupee has depreciated by c.7% QoQ against the US$ while depreciation
is sharper against currencies like Euro, Yen and Real on a YoY basis.
q One percent depreciation in rupee results in c. 1.3% upgrade in operating
earnings (assuming exports comprise 50% of overall revenues).
Negative impact for companies with hedges/ foreign liabilities
q Companies will large forex hedges or foreign liabilities will see substantial
immediate negative hit due to translation loss (liabilities) or MTM loss.
q Translation losses on FCCB/ECB for Aurobindo, Jubilant Life, Orchid and
Strides will have significant one time negative impact.
q Ranbaxy will be hit due to MTM loss on large outstanding forex hedge.
q While most companies run some hedges to cover 2-6 quarters of export
receivables and will see MTM loss on those, this is neutralized to some
extent by gain on receivables and inventory.
Top picks: Dr Reddy’s, Lupin, and Torrent
q We see benefit for Dr Reddy’s, Cipla, Lupin and Sun Pharma that have
large revenue exposure to US$ and the extent of hedges is reasonable.
q Additionally, rupee’s depreciation against Japanese yen and Brazilian real
will benefit Lupin and Torrent respectively.
q We prefer Dr Reddy’s, Lupin, and Torrent Pharma on back of strong
earnings growth expected over the coming quarters.
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