LAHORE - The weakening Rupee/Dollar parity will comfort the telecom sector, expanding cellular companies’ revenues while cement industry’s earnings will hurt significantly, as imported coal constitutes 45 per cent of the industry cost.
Cement sector relies heavily on the imported coal, comprising around 45 per cent of the manufacturing cost on average, observed All Pakistan Cement Manufacturers Association Chairman Aizaz Mansoor Sheikh. With rupee continuously losing its value, imported coal becomes costlier, he said and added depreciation of rupee always affects the industry negatively, increasing cost of production, resulting into price of end product for consumers. Industry experts are of the view that impact is mitigated through subdued coal prices in the international market coupled with higher realized cement export prices. They said that for Luck, this impact is sufficient enough to absorb any negative impact of higher coal cost. As per estimates, every 1 per cent increase in Rupee/Dollar parity has a 0.3 per cent positive bottomline impact for Luck; whereas for the rest, it ranges from 0.2 per cent to 4.1 per cent on the negative side on earnings. FCCL is expected to be the most affected player, as it is exposed to a Dollar-based loan to the tune of $66 million on its balance sheet.
According to industry experts, the impact appears to be positive for the giant Pakistan Telecommunication Company (PTC) if Rupee depreciates against the greenback. The recent rates being charged on account of the notorious ICH arrangement is expected to have massively improved margins from 0.9cents/min to 5.8cents/min. Hence, every 1 per cent increase in Rupee/Dollar parity boosts the company’s profitability by 0.85 per cent, further sweetening the fruits of the ICH arrangement.
Experts said that petrochemicals would be positively impacted by the weakening PKR as their product pricing is linked with the import parity price.
However, for EPCL, the benefit of falling rupee is somewhat diluted due to the exchange loss on its USD 40mn foreign exchange loan.
With margins on the regulated product fixed in absolute PKR/liter terms, weakening rupee only adds to the margins of deregulated products. However, for PSO, enjoying lion’s share in deregulated FO (53 per cent contribution to gross profit excluding gain/loss), falling rupee turns out to be a curse.
Major impact of the Rupee depreciation among fertilizer companies would be on FFBL (DAP manufacturer with raw material, Phos-acid, imports). FFBL’s primary margin for the 4QCY12 was settled at USD 282/ton.
The impact of PKR depreciation against the USD is expected to remain largely neutral for auto assemblers as JPY is also depreciating against USD that should nullify the impact of PKR depreciation against the USD. Both the currencies i.e. PKR and JPY depreciated against USD by 8.3 per cent and 8.9 per cent CY12TD, respectively. Textile contributes significantly towards the national exports (53 per cent). Local currency depreciation will help the industry turn more price competitive as better margins in local currency will be realized ahead.
The weakening Rupee/Dollar parity is supposed to comfort the bottomline in case of Independent Power Producers (IPPs). Most of the tariff components for power producers are indexed to prevailing exchange rate.