Domestic Firms' Forex Spending Up 18 Per Cent Per Annum Since 2007: India Ratings

Even as more domestic companies are netting a good portion of their revenues from overseas markets, their forex expenditure has been outpacing their earnings since 2007 to the tune of 18 per cent per annum, leading to a wider mismatch in balance-sheets, according to a report by India Ratings.

"The corporate level foreign currency deficit since 2007 grew at a compounded annual rate of 17.8 per cent to Rs 6,353 billion in FY'13," the rating agency said in its report on Thursday.

During these six years, the share of foreign currency in total revenues of BSE-500 companies grew to 20.1 per cent at an aggregate level from 17.1 per cent, while their forex expenditure grew to 41.8 per cent from the 38.6 per cent.

It can be noted that the country's largest corporate entity - Tata Group - earns more than 65 per cent of their revenue in forex, while software companies earn more than 95 per cent in forex. Similarly, private oil refiners like Reliance Industries and Essar Oil also earn nearly their entire revenues in forex.

"As may be expected, in a net importer nation such as India, its largest corporates on aggregate had more foreign currency outflows than inflows," the report said.

Over half of the companies which account for 70 per cent of the balance-sheet debt are net foreign currency spenders who are expected to suffer a pre-tax margin compression of 1.3 per cent in rupee terms for every percentage point of depreciation in the rupee, it said.

The challenge for such net spenders is aggravated as 17 per cent of their aggregate debt is foreign currency debt.

A little less than half of the BSE 500 companies are net earners of foreign currency and enjoy a 1.6 per cent expansion in the pre-tax margins for every 1 percentage point depreciation in the rupee.

The rupee has been very volatile for the past 18 months. From the 55 to the dollar levels, it rose to an all-time high of 68.84 in August 2013 to the dollar and is now trading at 59 levels.

The rating agency also identified the information technology and the pharmaceuticals as the sectors which benefit the most during a spate of currency depreciation, while consumer durables, fertilisers, chemicals, and automotive suppliers are among the sufferers.

It said players like Tata Elxsi, Polaris Financial Technologies and Mindtree will benefit the most during depreciation in the rupee, while bigger players like TCS and Infosys have better ability to deal with currency swings either ways and hence witness lower benefits in rupee depreciation.

"The lower sensitivity of these industry bellwethers can be attributed to their relatively large scale of on-shore operations, which causes them to incur significant foreign currency expenses as well," it said.