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The INR has depreciated strongly against the USD by 11% over the past quarter,
from 44.6 to 49.6. This steep movement in INR over a month’s time has led to
companies, such as Bharti Airtel (Bharti), which have a high exposure to foreign
currency in the form of long-term loans, put a risk their profitability. Thus, to
gauge the impact of depreciated INR, we have done an impact analysis.
As of 1QFY2012, Bharti had foreign currency denominated loans worth
~US$11.8bn (including the current liabilities part of borrowing). Assuming
USD/INR rate to remain at `50, we estimate the gross loan will increase by
~`6500cr due to INR depreciation against USD from `44.6 to `50. If the INR
remains depreciated at USD/INR of `50, then the interest payment outgo for the
company would increase from 3QFY2012 (not for 2QFY2012, as still the average
for 2QFY2012 settles at 45.8 vs. 44.7 in 1QFY2012). This can have a possible
P&L impact; however, the MTM impact of the sudden INR depreciation would be
captured in the borrowings and the foreign currency translation reserve, which
stood at `1,402cr as on 1QFY2012, on the balance sheet.
However, we still await some consolidation in INR, as the fortnight movement has
been steep. Considering USD/INR rate at `50, the FY2013E gross debt will
increase to `55,903 from `49,484 earlier (assuming USD/INR rate at `45). This
will lead to higher interest outgo, resulting in lower earnings. The possible
negative impact on Bharti’s PBT and EPS for FY2012 and FY2013 is expected to
be 1.1% and 2.7%, respectively. Valuing it on EV/EBITDA basis (considering the
USD/INR rate at `50), the target price reduces by 4.0% to `413 from `430
currently due to increase in FY2013E gross debt level. This would result in per
share impact of `17. However, at the CMP, the stock still warrants an opportunity
to Accumulate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The INR has depreciated strongly against the USD by 11% over the past quarter,
from 44.6 to 49.6. This steep movement in INR over a month’s time has led to
companies, such as Bharti Airtel (Bharti), which have a high exposure to foreign
currency in the form of long-term loans, put a risk their profitability. Thus, to
gauge the impact of depreciated INR, we have done an impact analysis.
As of 1QFY2012, Bharti had foreign currency denominated loans worth
~US$11.8bn (including the current liabilities part of borrowing). Assuming
USD/INR rate to remain at `50, we estimate the gross loan will increase by
~`6500cr due to INR depreciation against USD from `44.6 to `50. If the INR
remains depreciated at USD/INR of `50, then the interest payment outgo for the
company would increase from 3QFY2012 (not for 2QFY2012, as still the average
for 2QFY2012 settles at 45.8 vs. 44.7 in 1QFY2012). This can have a possible
P&L impact; however, the MTM impact of the sudden INR depreciation would be
captured in the borrowings and the foreign currency translation reserve, which
stood at `1,402cr as on 1QFY2012, on the balance sheet.
However, we still await some consolidation in INR, as the fortnight movement has
been steep. Considering USD/INR rate at `50, the FY2013E gross debt will
increase to `55,903 from `49,484 earlier (assuming USD/INR rate at `45). This
will lead to higher interest outgo, resulting in lower earnings. The possible
negative impact on Bharti’s PBT and EPS for FY2012 and FY2013 is expected to
be 1.1% and 2.7%, respectively. Valuing it on EV/EBITDA basis (considering the
USD/INR rate at `50), the target price reduces by 4.0% to `413 from `430
currently due to increase in FY2013E gross debt level. This would result in per
share impact of `17. However, at the CMP, the stock still warrants an opportunity
to Accumulate.
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