Higher raw material cost, a rise in wage bill, depreciation and an increase in other expenses kept overall margins of India Inc under pressure in the December quarter.

While there has been no respite from rising expenses, several companies were also hit by losses on foreign exchange or forex account, as overseas borrowings raised earlier continued to be a drag on balance sheets amid a continuous slide in rupee against the US dollar, which resulted in exchange losses.

Between October and December, rupee fell 8 per cent from 49.10 to 53.10. In December itself, the domestic currency scaled a life-time low of 54.30 against the US dollar, as companies rushed to buy dollars to meet import obligations.

Vaibhav Agrawal, vice-president for research at Angel Broking, said: “Rupee has been quite volatile over the past few months. Because of a sharp depreciation before January, several companies that tried to play interest arbitrage between domestic and foreign loans suffered on account of rupee depreciation.”

“In our view, such foreign borrowings were a bit miscalculated, as some of them were used to fund expensive acquisitions. It is possible that over 3-5 years, rupee depreciation may eat away a good chunk of the arbitrage that these companies were banking on. In the short run though, rupee has again appreciated meaningfully in January. So we may see a partial reversal in forex losses in the fourth quarter,” Agrawal said.

At a time when interest rates were rising sharply following the record policy rate hiking spree of the Reserve Bank of India, several Indian companies raised resources through the external commercial borrowing (ECB) route to meet operational and other expenses.

Interest rates on ECBs were comparatively cheaper than on loans taken here, which made this route lucrative for many companies to raise funds in overseas markets. However, the sharp appreciation of dollar caught them off guard, making ECBs highly expensive.

Over 200 companies have reported forex losses in the previous quarter and the total stood at Rs 5,437 crore, up 2.1 per cent compared with that of the preceding (July-September) quarter, according to data compiled by Capitaline.

Analysts say companies have to make mark-to-market (MTM) provisions for loans raised in foreign currency. However, firms can only show loans taken for working capital purposes in the profit and loss account and funds used for creating assets and capital expenditure would slip into the balance sheet.

Among companies that registered higher forex losses over the preceding quarter were Jubilant Life (Rs 155 crore against Rs 16.23 crore) JSW Energy (Rs 138 crore against Rs 87 crore), Chennai Petroleum (Rs 327 crore against Rs 292 crore) and Jain Irrigation (Rs 71 crore against Rs 59 crore).

JSW Steel’s forex loss stood at Rs 500.11 crore compared with Rs 514.04 crore in the previous quarter.

“Over the past three months, the rupee value has see an unusual drop against the US dollar. The net loss of Rs 5,011.11 crore on restatement of foreign currency monetary items at the close of the quarter has been considered by the company as exceptional in nature,” JSW Steel said in a statement.

G Chokkalingam, executive director & CIO at Centrum Wealth Management, said: “The government allowed companies that have taken loan in overseas markets to show forex losses in their books in a staggered manner after rupee witnessed a sharp fall over the last five months of 2011. As a result, we are still seeing companies showing forex losses in their books. But the trend is expected to change in the next quarter. In fact, companies are likely to report forex gains as rupee has appreciated sharply over the past six weeks.”

From an all-time closing low of 54.30 against the dollar touched in December last year, rupee closed at 49.27 on Friday, an appreciation of 10 per cent in 2012 so far, as robust foreign fund inflows to the tune of nearly $5 billion into the equity market helped reverse the trend.

Already, a few large-cap companies have reported lower forex losses compared with the previous quarter. Tata Motors has seen its forex loss fall sequentially to Rs 164 crore from Rs 439 crore, while Steel Authority of India has reported Rs 466 crore forex loss against Rs 509 crore and Sesa Goa has seen it fall to Rs 178 crore from Rs 234 crore.

Others such as Wockhardt, Jindal Stainless, JK Tyre & Industries and Kothari Products — among others — have reported lower forex losses compared with the previous quarter.

AK Prabhakar, senior vice-president at Anand Rathi Securities, said: “Rupee’s sharp appreciation over the past one-and-a-half month will give a breather to companies in the March quarter and several of them may show forex gains. Over the past couple of quarters, companies were done in by a sharp drop in the

currency and one cannot escape when there is huge volatility as we saw in 2011.”

Some analysts said aggregate forex losses of India Inc as a whole are likely to come down in the October-December quarter from Rs 6,752 crore in the July-September quarter (2011-12). They cite a drop in the currency and increased hedging by companies as reasons for this decline.

Shanu Goel, senior research analyst at Bonanza Portfolio, said: “A highly volatile currency market caused companies incur heavy forex losses during the past quarter. Since companies make payments in dollar for purchasing raw material, machinery or equipment from global sources, their payment outgo was affected adversely by the currency movement.”

“Only IT companies were better off in the third quarter as bulk of their revenue comes in dollar. The outlook for the March quarter overall is slightly better as rupee has regained the value lost in the previous quarter with the successful intervention of the central bank. Forex losses are expected to be modest in Q4 compared with Q3," he said.

prasannadeshpande@mydigitalfc.com