Re rise to boost Q2 results for firms with large foreign debt

The rupee’s rise is expected to boost the second quarter results of companies with large amounts of foreign debt, as they would be cutting provisioning for mark-to-market losses (MTM, revaluation of assets at current prices).

The rise should also help these with lower cash outflow for repayment of loans due in the quarter or on servicing interest .

“The benefit on corporate results will be largely seen by infrastructure companies, as they have large foreign borrowings,” said Prabal Banerjee, chief financial officer at Adani Power.

GAIN AND LOSS Top 20 of the 167 companies that reported a total loss of Rs 13,067 cr in Q1 of FY13               (Rs  cr)
IOCL	3187.01
BPCL	1611.34
Ranbaxy Labs	849.79
Essar Oil	770.00
MRPL	648.66
JSW Steel	594.84
Tata Motors	440.53
CPCL	377.43
SAIL	256.94
JSW Energy	232.49
Sesa Goa	232.36
Lanco Infratech	230.24
Sterlite Inds	217.36
Jindal Stain	209.13
Motherson Sumi	200.90
JSW Ispat	188.55
Alok Inds	172.96
Indo Rama Synth	105.05
Jubilant Life	104.24
Guj Fluorochem	97.66
Source: Capitaline

Financial research firm Capitaline’s figures show 167 Indian companies reported a total loss of Rs 13,067 crore on foreign exchange transactions in the financial year’s first quarter ending June. This includes MTM losses on debt, besides foreign exchange losses from other transactions, such as higher outflow for bank loans.

Global accountancy firm Pricewaterhouse Coopers (PwC) says AS-11, the accounting standard practiced by most Indian companies, provides an option for calculation of MTM losses on long-term debt in the balance sheet and not in the profit and loss account. Any debt more than a year is considered long-term for this calculation.

However, all companies have to record their MTM losses in their quarterly results for foreign debt less than a year. This basically means re-stating the loans at the closing exchange rate at the end of the quarter and book losses in line with the depreciation in the value of the rupee since the debt was incurred. “Less than a year loans are usually working capital loans or export credits,” said Kumar Dasgupta, partner with PwC.

These losses are calculated on the value of the rupee at the end of every quarter. It had depreciated 9.4 per cent to 55.64 against the dollar at the end of the quarter ending June, from 50.88 at the end of the March quarter. This led to huge provisioning for MTM losses. The rupee then appreciated to 52.86 against the dollar by the end of the quarter ending September. Provisioning for the MTM lossses would then come come down.

“There will definitely be a gain because of the rupee appreciation but I cannot quantify that,” said P K Goyal, chief financial officer at India’s largest refiner, Indian Oil Corporation. The company had reported the highest, Rs 3,187 crore, of losses attributed to forex transactions, including MTM movement.