The euro has fallen sharply against the Indian rupee, which has gained 3.7 percent in the past month (from Rs 81.45 to Rs 78.40) against the currency. A similar percentage move has been witnessed between the rupee and the British pound.
The currency fluctuation becomes in the context of the impact it has on trade (the Eurozone is India's second largest partner on both exports – 20 percent of all merchandise – and imports – 17 percent) as well as corporate earnings.
A strong rupee makes imports cheaper while negatively impact exports. Key trade sectors for India-Europe include engineering goods, refinery products, textiles, healthcare, IT services etc (exports) and precious metals and capital goods (imports).
In a research report, JPMorgan analysed companies that will likely be impacted the most from the recent currency-rate volatility, either by virtue of having direct operations in the Euro area or exporting to it. Excerpts.
Auto companies
Tata Motors derives 70 percent of its revenues the British subsidiary JLR. However, within that, JLR derives 55 percent of its own revenues in the US dollar and so the euro's depreciation would be beneficial to it. However, the gains from the same will be partially offset while consolidating JLR financials in INR as the Indian currency has strengthened against the euro/GBP.
Exports to Europe account for 25 percent of Bharat Forge 's revenues. While Motherson Sumi derives 80 percent of revenues from its Europe-based subsidiaries. While consolidating financials, the weaker Euro will impact Motherson's earnings (in rupee).
Metals & mining
The depreciation would be net positive for Tata Steel as about 60 percent of its production is Europe-based and a weak euro would support local steel prices. It would however be a small negative for Hindalco as about 10 percent of operating profit comes from Europe (from Novelis, which has presence across North America, Europe and Asia).
IT services and healthcare
There will be adverse translational revenue impact for companies of both sectors. Europe accounted for 33 percent, 30 percent, 30 percent and 25 percent of revenues for HCL Tech , TCS , Wipro and Infosys , respectively, in FY14.
Among pharmaceutical firms, Dr Reddy's , Glenmark and Lupin have 12 percent, 8 percent and 3 percent exposure.
Others
The depreciation would be minor negative for capital-goods firm Crompton Greaves , for which Europe comprises 45 percent of its international business and building products firm Havells , which could see some impact from its Sylvania operations. However, profits of both companies' overseas businesses are small and so may not have a meaningful impact on overall earnings.
Travel operator Cox & Kings is likely to witness a negative impact as 65 percent of its operating profit comes from UK travel and education business.
Tata Motors stock price
On September 23, 2014, at 14:10 hrs Tata Motors was quoting at Rs 519.85, down Rs 19.55, or 3.62 percent. The 52-week high of the share was Rs 544.50 and the 52-week low was Rs 330.25.
The company's trailing 12-month (TTM) EPS was at Rs 0.08 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 6498.13. The latest book value of the company is Rs 59.58 per share. At current value, the price-to-book value of the company is 8.73.
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