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Most analysts were surprised when Lanco Infratech reported a loss of Rs 580 crore for the quarter ended June.
The higher-than-expected losses were largely due to foreign exchange losses of Rs 220 crore.
Since then, the rupee has depreciated significantly against the dollar.
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Due to this, analysts are more apprehensive now. This is because the company has huge foreign currency exposure in terms of imports and foreign debt in its books.
The company is exposed to foreign currency risks because of coal imports to fuel its power plants in India. On a standalone basis, 57 per cent of its raw material - coal worth Rs 1,443 crore - was imported in 2012-13.
That financial year, total foreign exchange outgo stood at Rs 1,834 crore, against foreign exchange earnings of Rs 310.13 crore.
On a net basis, this means the company's outflows are high and, therefore, the falling rupee (if unhedged) could hit the company.
According to an Emkay Global Financial Services analyst, the rupee's recent depreciation could impact Lanco's earnings by about Rs 76 crore and increase the total liability of the company by Rs 1,289 crore, based on the unhedged exposure of the company as of March.
Analysts expect this financial year, the company would report a loss of Rs 409.7 crore. If the company has taken initiatives to mitigate the risk, the actual impact might be different. The forex losses resulted from imported coal for its 1,200-Mw Udupi power plant. In the June quarter, the power plant reported a loss of Rs 26 crore due to a Rs 37.6-crore notional forex loss.
High leverage
As of June this year, the company had total net debt of about Rs 34,770 crore in its books. Considering the huge debt and liquidity woes, the company has already filed for corporate debt restructuring for its domestic debt.
The situation is so grim that the company has cut its employee count by 4,000-4,400, about half of its employee base. Of its total debt, about Rs 6,000-7,000 crore is estimated to be foreign debt.
Typically, depreciation in the rupee means an increase in debt liability and higher interest costs. In the case of near-term maturities or payment of foreign debt, cash flows to that extent would be impacted.
Measures not enough
Though the company has been taking effective measures to hedge its exposure, analysts believe given the magnitude of the recent fall in the rupee, an impact would be visible in the coming quarters. According to the company's annual report for this year, total unhedged foreign currency exposure stood at Rs 8,187 crore (including debt and other business related transactions).
