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Chemical, fertiliser, paper cos worst-hit by Rupee fall: Fitch

Chemical, fertiliser and paper industries will be hit hard by sustained depreciation in the rupee value, a report said Friday.



Mumbai: Chemical, fertiliser and paper industries will be hit hard by sustained depreciation in the rupee value, a report said Friday.

On the other hand, pharmaceutical and IT companies may not register gain like they did last year from the currency's fall, the report by Fitch & India Ratings on 'Rupee depreciation impact on various sectors' said here.

The effect of the rupee depreciation on importers will depend on several factors, including whether they are able to pass on higher prices via the import parity price(IPP), practices common in certain industries, it said.

Chemical, fertiliser and paper companies, along with cement producers that do not have adequate domestic coal links, import a lot of raw materials, so they will also not be benefited from IPP arrangements. These companies will have limited opportunity to pass on higher costs because of subdued demand and thus could be the worst affected by fall in rupee.

Oil and gas and metal industries are more likely to benefit from IPP practices or to have significant exports that help offset the rising cost of imported raw materials.

Companies in the auto ancillary sector also typically have contracts to pass on higher costs to original equipment manufacturers, but may be forced to absorb some of the price increases due to falling end-user demand.

For exporters such as pharmaceutical, technology, textile and mining companies, the beneficial effect on operating margins and leverage are likely to be weaker than previous periods of depreciation. This is due to lower global demand, aggressive price renegotiations, hedged foreign-currency exposure and additional cost of servicing foreign-currency debt.

The rupee has fallen about 10 percent against dollar since the start of May and its decline has accelerated amid concern about the eventual withdrawal of quantitative easing in the US.

PTI

From Zee News

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