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Moody's Investors Service [10] says that the sharp decline in the value of the Indian rupee is generally exerting a moderate impact on rated Indian companies with the country's largest oil refining and marketing company, Indian Oil Corporation, facing the biggest challenges.

At the same time, while the currency's fall will increase the debt-servicing costs of companies with foreign currency debt, the risks for those holding large amounts of USD-denominated debt are also manageable in the near term, given that debt maturities are limited for this time frame, Moody's says in a new report.

By contrast, Indian exporters should benefit, as will companies able to produce substitutes for now-more-expensive imports, but their increased revenues will mitigate but not offset the wider costs of imported inflationary pressures on their input costs.

"Energy constitutes the largest portion of India's import bill, and IOC, together with the other unrated Indian refining and marketing companies BPCL and HPCL, which import oil to supplement their small amounts of domestic production, have the most direct exposure to a weaker local currency," says Alan Greene, Moody's Vice President and Senior Credit Officer.

Vikas Halan, a Moody's Vice President and Senior Analyst, adds that the severity of the weakening rupee on Indian corporate issuers ranges from high, but potentially recoverable for IOC, to low for regulated utilities and export-oriented companies, benefiting from either automatic pass-through of higher costs, or net export contributions. For others, offshore operations may accentuate or mitigate the impact of a depreciated local currency.

"Since the beginning of 2011, the rupee has lost 15%-20% against all major currencies. The country's heavy dependence on energy imports and persistently high inflation provide limited headroom for its regulated, import-dependent sectors to cope with higher import bills brought on by a weakened currency," says Halan.

To a moderate degree, the rupee depreciation also affects the Tata Group's manufacturing companies with large foreign operations, although Tata Steel Limited is the most vulnerable among these.

For auto exports from Tata Motors Limited, the firm's domestic base operations will benefit little because its underlying, USD-linked raw materials of steel now cost more.

In addition, several international car manufacturers use India as a base for the production of vehicles sold in both domestic and export markets, so Tata Motors gains no competitive advantage.

Meanwhile, private-sector refining companies in India have limited exposure to the costs of marketing price-controlled fuel products and thus few restrictions on their ability to pass through increased costs of imported oil, denominated in USD. Furthermore, as these firms sell the refined products via import-parity pricing, they may benefit from rupee depreciation.

Privately owned Reliance Industries Limited is the second largest energy importer in the country after IOC. However, Reliance is also India's largest exporter, so the company's net imports relative to EBITDA arewithin tolerable limits at about 1x. Moreover, the linking of Reliance's products sold in India to international pricing offsets the effect of its net imports.

The report also notes that Information-technology-services companies, deriving revenues from exports and having a rupee-denominated cost base, benefit from a depreciated currency. However, over time, domestic wage inflation offsets the advantage.
 

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