$46bn in foreign debt for our coverage
Given the continued depreciation of INR vs. USD
(6% since April 1, 2013), we analyze the impact on
our coverage in an extension of our publication
India: Across the Board: Examining the impact of
forex on financials for our India coverage, dated
May 22, 2012. Our coverage (ex-financials) has
aggregate foreign debt of US$46bn (35% of
overall debt). Eighty-six percent of this foreign
debt is concentrated across just 11 firms, mainly
from the telecom, infrastructure and energy
sectors.
Scenario analysis to measure forex impact
In this note, we run a scenario analysis to
measure the impact of forex fluctuations
assuming a direct P&L impact (1Rs depreciation
impacts FY14E EPS for our coverage by -10% to
+6%). Reality may differ from our assumptions as
we have limited visibility on hedging strategies
and note that there is no uniform way in which
companies are accounting for forex fluctuations
(some reflect this on their P&L, while others
directly capture this on their balance sheets).
Three types of impact for our coverage
First – and worst hit – are companies with material
foreign debt or significant imports and no natural
hedge in the form of export revenue.
Second, we highlight companies with foreign debt
and/or import costs, but where the impact is
blunted by a natural hedge in the form of foreign
revenues or pass through mechanisms.
Third are companies that benefit from a) material
export revenues denominated in US$, b)
translational gains from overseas subsidiaries
with revenues in US$ and c) minimal foreign debt.
We highlight 14 firms with potential 10%-
23% EPS impact if current rates prevail
While this note provides granularity on our entire
coverage, we highlight 14 situations (both positive
and negative) where the EPS impact – on a full
year basis – could be from 10%-23% if exchange
rates were to remain at current levels. Buy-rated
stocks that we see benefiting from INR
depreciation include ESRO.BO, HCLT.BO (CL),
RELI.BO, SATY.BO, and TEML.BO.
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Given the continued depreciation of INR vs. USD
(6% since April 1, 2013), we analyze the impact on
our coverage in an extension of our publication
India: Across the Board: Examining the impact of
forex on financials for our India coverage, dated
May 22, 2012. Our coverage (ex-financials) has
aggregate foreign debt of US$46bn (35% of
overall debt). Eighty-six percent of this foreign
debt is concentrated across just 11 firms, mainly
from the telecom, infrastructure and energy
sectors.
Scenario analysis to measure forex impact
In this note, we run a scenario analysis to
measure the impact of forex fluctuations
assuming a direct P&L impact (1Rs depreciation
impacts FY14E EPS for our coverage by -10% to
+6%). Reality may differ from our assumptions as
we have limited visibility on hedging strategies
and note that there is no uniform way in which
companies are accounting for forex fluctuations
(some reflect this on their P&L, while others
directly capture this on their balance sheets).
Three types of impact for our coverage
First – and worst hit – are companies with material
foreign debt or significant imports and no natural
hedge in the form of export revenue.
Second, we highlight companies with foreign debt
and/or import costs, but where the impact is
blunted by a natural hedge in the form of foreign
revenues or pass through mechanisms.
Third are companies that benefit from a) material
export revenues denominated in US$, b)
translational gains from overseas subsidiaries
with revenues in US$ and c) minimal foreign debt.
We highlight 14 firms with potential 10%-
23% EPS impact if current rates prevail
While this note provides granularity on our entire
coverage, we highlight 14 situations (both positive
and negative) where the EPS impact – on a full
year basis – could be from 10%-23% if exchange
rates were to remain at current levels. Buy-rated
stocks that we see benefiting from INR
depreciation include ESRO.BO, HCLT.BO (CL),
RELI.BO, SATY.BO, and TEML.BO.
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