Firms could lose over Rs 100 billion due to rupee fall: CARE Ratings

Illustration by Ajay Mohanty
Firms could be incurring an additional interest outflow between Rs 106 billion and Rs 128 billion on account of rupee depreciation this financial year, according to a study by CARE Ratings.

“This is the additional burden for the corporates having borrowed funds via the ECBs (external commercial borrowing) route and is purely based on the assumption of no hedging. This could be unfavourable for corporates as the profitability of such companies will be adversely impacted,” the study, done by Madan Sabnavis, chief economist, and Sushant Hede, associate economist at the rating agency, said.

The additional interest outflow on account of the local currency, which has fallen 13.6 per cent so far this financial year, would be 1-1.3 per cent of the total interest expenses of Rs 9.3 trillion, reported by a sample of 2,700 companies for FY18, including banks.

India’s total external debt as on March 31 was $529.3 billion, of which $202.2 billion are external commercial borrowings.

“There could be an additional burden of Rs 106 billion-Rs 128 billion of interest outflow and Rs 225 billion of principal repayment for the corporates having exposure to ECBs and under the assumption of no hedging undertaken by these corporates. The total impact could be in the range of Rs 330 billion-Rs 350 billion,” the duo wrote.

If there is a hedging cover of about 20 per cent of the total ECBs’ exposure, there could be a total saving of Rs 60-70 billion, which could moderate the impact on the corporates.

“The rupee, which is expected to be in the range of 71/$ to 75/$ till the end of the financial year could have an adverse impact on the profitability of the corporates for FY19,” the report said, adding that the sharp fall in rupee and the expectations of it remaining low could also make corporates uncertain in availing the ECB facility going forward.

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