Weak rupee plays spoil sport to companies in Q3
AEL, Arvind, Cadila Healthcare among others posted a fall in net profit
A sharp slide in rupee valuation against US dollar during the third quarter of the current fiscal led many companies in Gujarat to witness a fall in their profits. Some of them include names such as Adani Enterprises Ltd, Arvind Ltd, Cadila Healthcare, Electrotherm Ltd and Vadilal Industries, profits of these companies were eroded by losses on foreign exchange account. A slide in rupee against US dollar made overseas borrowings costlier and affected companies' profits on the books during the quarter.
During the third quarter (October-December), Indian currency fell by 8 per cent against US dollar from Rs 49.10 a dollar to Rs 53.10 a dollar. Rupee hit its all time low level at Rs 54.30 a dollar during the month of December.
Gujarat-based diversified conglomerate, Adani Enterprises Ltd (AEL) registered consolidated net profit of Rs 407.28 crore for the third quarter ended December 31, 2011. This was down by over 14 per cent from Rs 474.14 in the corresponding period in the last fiscal. The company attributed the drop in profit to the foreign exchange losses.
One of the leading pharmaceutical and FMCG major, Cadila Healthcare Ltd reported lower consolidated and stand-alone net profit due to forex losses. Company's consolidated net profit stood at Rs 149.21 crore, down by 8 per cent against Rs 162.01 crore for the same period last year. According to the company, the results for the quarter included a one-time charge of Rs 34.17 crore towards loss on account of foreign exchange fluctuations.
India's largest denim maker, Arvind Ltd registered foreign exchange losses worth Rs 38 crore during the quarter. The company posted a consolidated net profit from ordinary activities of Rs 52 crore for the third quarter of the fiscal 2011-12 as against Rs 48 crore in the corresponding period last year, showing a growth of eight per cent.
According to the company, the growth in profits came even after writing off Rs 38 crore foreign exchange losses during the quarter. "Last year we had registered foreign exchange gains as part of the Rs 48 crore net profit. However, this year with rupee depreciating to Rs 53 against dollar in December 2011, we had to write off losses," Jayesh Shah, director and chief financial officer, Arvind Ltd had informed after the announcement of company's quarterly financial results.
"The Reserve Bank of India (RBI) had tightened monetary policy in India to control high inflation. This made domestic funding costly and caused many companies to source funds through sources like external commercial borrowings (ECB) and Foreign Currency Convertible Bonds (FCCB). Such instruments, for which interest payments have to be made in rupee, became costly due to fall in rupee rates," informed Ashish Shah, advisor at Wealth First Advisors Pvt Ltd, an Ahmedabad-based financial advisor and equity analyst firm.
According to him, companies made mark-to-market (MTM) provisions for loans raised in foreign currency, which gone awry due to steep hike in rupee rate in a short span of time. "There are companies, which incurred losses in capital account and also in trade account. Most companies who indulged into export or import operations and hedged against currency fluctuations, had to incur forex losses," he added.
However, rupee has improved against dollar in recent weeks and traded at around Rs 49 per dollar. But analysts maintained that things may not be as normal as they appear. "At current level too, rupee is still ruling high against its previous levels of Rs 45 a dollar a couple of quarters back. Worst is still not over for India Inc," Shah cautioned.
As per the data compiled by Capitaline, a corporate financial database provider, more than 200 companies in India had incurred forex losses during the third quarter. "The total forex losses by all the companies put together stood at Rs 5,437 crore, up 2.1 per cent against July-September quarter of the current fiscal," Capitaline data showed.