Falling rupee’s impact on industrial sector
KARACHI, Dec 22: The depreciation of the rupee against the US dollar is forecast to have varying impact on the profitability and performance of the several sectors listed on the Karachi Stock Exchange: IPPs, telecoms, cements, chemicals, OMCs, fertiliser, autos and textiles.
But analysts point out the rupee was not the only one to have weakened against the US dollar.
“Putting all the blame on the loan repayments, and oil payments for that matter, does not justify the recent attrition in the rupee against US dollar,” affirm analysts at brokerage Arif Habib Limited.
Several other important currencies were also plummeted by the greenback. The Japanese yen, for instance, lost 8.9 per cent value against the dollar compared to a decline of 8.5 per cent (up to Dec 18) in rupee against the US currency.
The British pound sterling declined by 4.5 per cent; euro by 1.5 per cent, Australian dollar by 5.3 per cent and Canadian dollar by 5.6 per cent.
The analysts work out the impact of rupee/dollar parity on profitability of various sectors.
IPPs: The weakening of the rupee is thought to be a blessing for the IPPs as most of the tariff components for power producers are indexed to prevailing exchange rate.
However, being pass-through, the effect fades away till reaching net earnings. In case of newer plants, operations and maintenance (O&M) savings can also be exaggerated with the rupee depreciation.
“We estimate that, 1pc decline of rupee against the dollar provides room for 0.25pc to 1.1pc growth in earnings for power sector companies including Hub Power Company, Kot Addu Power, Nishat Power and Nishat (Chunnian) Power,” the analysts calculated.
Telecoms: The impact of rupee fall was thought to be positive for the giant Pakistan Telecommunication Company (PTCL). The recent rates being charged on account of the ICH arrangement (though PTA has already withdrawn its letter forming the same) was expected to improve margins from 0.9cents per minute to 5.8cents per minute.
Analysts say that although the issue is sub judice, however, every 1pc increase in rupee/dollar parity boosts the company’s profitability by 0.85pc, which further sweetens the fruits of the ICH arrangement.
Cement: The cement sector relies heavily on the imported coal, which constitutes around 45pc of the manufacturing cost on average.
With the rupee continuously losing its value, imported coal becomes costlier. However, the impact has been mitigated by the softening coal prices in the international market coupled with higher realised cement export prices.
Chemicals: Petrochemical stocks, LOTPTA and Engro Polymer (EPCL) were though to be positively impacted by the weakening rupee as their product pricing is linked with the import parity price.
However, for EPCL, the benefit of falling rupee was somewhat diluted due to the exchange loss on its $40 million foreign exchange loan. “For every 1pc drop in rupee/dollar parity, EPCL suffers an after tax bottomline impact of Rs0.03 per share or 2 per cent”, analysts say.
Textile: The sector contributes over 53 per cent to the country’s aggregate exports. Local currency depreciation could help the industry turn more price competitive as better margins in local currency would be realised ahead.
OMCs: With margins on the regulated product fixed in absolute rupee per litre terms, weakening rupee only adds to the margins of deregulated products.
Autos: The impact of rupee depreciation against the dollar was thought to remain largely neutral for auto assemblers as yen was also depreciating against the dollar that should nullify the impact of rupee fall against the greenback.
As for payment purposes, local auto assemblers first buy dollar against Rupee and then convert dollar to Yen for their payments, thereby negative any major positive impact that might accrue owing to Rupee appreciation in relation to Yen”, analyst contend.