Rupee impact on corp ratings ltd: Fitch

Rupee vs Dollar

Rating agency Fitch Ratings, in a newly published report, says that the credit ratings of 274 investment grade corporate companies (constituting 92% of the outstanding adjusted debt) are unlikely to be impacted despite the sharp depreciation of the Indian rupee. Another 28 issuers may expect negative rating actions, such as an outlook change or a rating downgrade, in the event of a sustained depreciation of rupee. However, Fitch does not expect any of these issuers to default. The agency also cautions that the impact on non-investment grade corporates could be severe, given their limited financial flexibility.

Fitch analysed the impact of rupee depreciation on the credit profile of 302 corporates rated at investment grades as per Fitch's National rating scale. The study focuses on 14 sectors which would be most impacted (either positively or negatively) by the rupee depreciation. The sectors were divided into four groups namely a) net exporters (pharmaceuticals, technology, mining and textiles, gems & jewellery), b) net importers with ways to mitigate depreciation (auto ancillary, oil & gas, metals - ferrous & non-ferrous), c) net importers without ways to mitigate depreciation (chemicals, fertilisers, paper and cement), and d) business model driven exposure (diversified manufacturing). Under these sectors, a detailed analysis is provided for the likely to be worst hit 114 companies, of which 57 are listed.

Fitch expects export-oriented companies to derive lesser benefits from rupee depreciation than historically observed. The lower impact is attributed to weak demand in the global economy, aggressive price renegotiations, hedging of foreign currency exposures and the negative impact of foreign currency debt servicing. These factors will cap the benefit to the credit profiles of companies in the pharmaceutical, technology, textile, and mining sectors.

The impact will be marginal for companies with the ability to pass on cost increases, such as auto ancillary sector, or where prices are driven by import parity practices, such as oil and gas or metals industry. However, a slowdown in end-user demand may force companies in auto and related sector to absorb some of the price increases.

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