Telcos may see negative impact

Mumbai: S&P Global Ratings said most of its rated Indian companies can withstand the recent sharp depreciation in the Indian rupee as the share of US dollar linked earnings largely balance the share of dollar denominated debt.

However, it added that a few rated Indian corporates like those in the debt-ridden telecom sector would be negatively impacted, as they tend to have a greater share of foreign currency debt compared to their share of foreign currency earnings.

On Thursday, the rupee closed the session at a fresh all-time low of 70.16 a dollar after hitting an intra-day low of 70.40 after India’s current account deficit widened to a five-year high.

Noting that the rupee remains volatile alongside emerging market assets, the rating agency said a weaker and more volatile rupee would likely result in increased hedging costs for firms.

“A few rated Indian corporates will be negatively affected, but not severe enough to impact the credit rating. These companies tend to have a greater share of foreign currency debt compared to their share of foreign currency earnings. Export-focused sectors could see a credit benefit, including IT services and pharmaceuticals,” S&P said.

It expects the credit profile of rates infrastructure firms to be largely protected from the current bout of rupee depreciation.

According to S&P, regulated entities like NTPC, Power Grid and NHPC enjoy cost pass through for currency depreciation or hedging costs while unregulated entities such as Adani Transmission and Greenko Energy Holdings are protected due to hedges on foreign currency bonds.

Delhi International Airport and Hyderabad International Airport benefits from foreign currency earnings as well as hedging.  

“We believe the debt-laden telecom sector could face further stress due to limited foreign-exchange earnings combined with foreign currency debt. Bharti Airtel is a case in point.  The company's share of foreign-currency earnings is only 20 per cent, whereas its share of foreign-currency-denominated debt is about 50 per cent. A sustained depreciation of the rupee could thereby negatively affect its leverage,” the rating agency added.

In the IT sector, it said the rupee depreciation is an unqualified positive for firms such as TCS, Wipro and Infosys. These firms have little or no debt and typically carry unhedged positions on their dollar earnings beyond one year.