The sharp decline in the value of the rupee is generally exerting a moderate impact on rated Indian companies, said a report by international rating agency Moody's.
“Energy constitutes the largest portion of India's import bill, and IOC, together with the other unrated Indian refining and marketing companies BPCL and HPCL, which import oil to supplement their small amounts of domestic production, have the most direct exposure to a weaker local currency,” said Mr Alan Greene, Vice-President and Senior, Credit Officer, Moody's.
The rupee has lost 15-20 per cent against all major currencies since the beginning of 2011. The country's heavy dependence on energy imports and persistently high inflation provide limited headroom for its regulated, import-dependent sectors to cope with higher import bills brought on by a weakened currency, said Mr Vikas Halan, Vice-President, Moody's.
Private refiners to benefit
Meanwhile, private sector refining companies in India have limited exposure to the costs of marketing price-controlled fuel products and thus, few restrictions on their ability to pass through increased costs of imported oil, denominated in US dollar. Furthermore, as these firms sell the refined products via import-parity pricing, they may benefit from rupee depreciation.
Private sector Reliance Industries, which is the second largest energy importer in the country after IOC, is also India's largest exporter. So the company's net imports relative to EBITDA are within tolerable limits. Moreover, the linking of Reliance's products sold in India to international pricing offsets the effect of its net imports, said the report.
Information technology services companies, deriving revenues from exports and having a rupee-denominated cost base, would also benefit from a depreciated currency. However, over time, domestic wage inflation offsets the advantage, the report said.