Most Indian companies protected against weakening rupee: Moody's report

Firms' costs in dollar terms might rise as India battles second wave of Covid-19, says agency.

Rating agency Moody's said on Thursday most rated Indian companies can manage the rupee’s depreciation due to hedge and part of earning in hard currency.

The currency’s sustained weakening against the US dollar will be credit negative Indian companies that generate revenue in rupees, but rely heavily on dollar debt to fund operations. This will lead to significant dollar-based costs, according Moody's.

Most companies have currency protections, with nearly half of Moody's rated portfolio benefiting from natural hedges. April 27, 2021, the Indian rupee closed around 74.66 against the US dollar, or about three per cent lower than levels in mid-March.

Moody's released a report that looks at 22 rated India-based companies across various sectors such as IT service-related, commodities, TMT and automotive.

India is reporting new record daily increases in coronavirus infections, prompting new lockdowns and restrictive measures to curb the spread of the pandemic.

The exponential rise in new coronavirus cases in India is a humanitarian crisis. It also raises concerns about the country's economic recovery and currency fluctuations.

Most companies have protections to limit the effect of currency fluctuations. These include natural hedges, where companies generate revenue in US dollars or have contracts priced in US dollars. Some have US dollar revenue and financial hedges; or a combination of these factors to help limit the strain on cash flow and leverage, even under a more severe deprecation scenario.

As a result, weaker credit metrics under a scenario in which the rupee depreciates a further 15 per cent against the dollar can be accommodated within the companies' current rating levels, agency added.

Refinancing risk associated with US-dollar debt over the next 18 months also appears manageable, as most companies are repeat issuers and others are government-owned or linked entities with good access to capital markets.