Forex loss of 30 cos widens to Rs 3.7k cr in Q3
TCS reported a forex loss of Rs 251 crore for the December quarter & Ranbaxy has reported a record forex loss of Rs 953 crore for the quarter.
By Ranjit Shinde, ET Bureau |
A brutal currency market continues to baffle India Inc. Losses due to exchange rate fluctuations and wrong hedging calls have widened in the quarter ended December ���08. Around 30 companies have so far reported a combined forex loss of Rs 3,742 crore for the third quarter. As the rupee slipped against dollar, losses grew as companies cancelled forward contracts at unremunerative levels and revalued their foreign currency loans.
While some companies have used accounting provisions to treat forex losses differently, they have mentioned the numbers in notes to the accounts. The same set of companies had suffered a combined loss of Rs 2,500 crore in the three months ended September 30 and Rs 1,761 crore in the June quarter. Exporters sell their dollar receivable forward to hedge against possible decline of the dollar. However, the dollar rose in the last quarter and at a rate that was faster than they had expected.
When the local company receives the money from the foreign buyer, it sells the dollar at the prevailing market rate and simultaneously settles the forward contract with the bank. Since the dollar has gained, the company ends up paying money to the bank. For forward contracts which would mature at a later date, the company has to account for the mark-to-market loss. As far as dollar loans are concerned, the exchange loss which crops up in the local rupee balance-sheet is shown by providing the amount in the company���s profit and loss statement.
The rupee slipped by nearly 4% during the last quarter and around 8% in the September quarter. Out of the total loss of Rs 3,742 crore, more than two-third (or Rs 2,458 crore) is on account of currency hedging practices while the balance is attributed to revaluation of dollar liabilities. Companies use the misleading term ���hedging losses��� in referring to contracts where they have run out of money or have lost out.
It primarily reflects the missed opportunity or the loss suffered by locking at an exchange rate which is less attractive than the market���s.
Some companies have been able to protect their net profits by using the accounting standard AS30. The standard allows companies to book the hedging loss under hedging reserves on their balance sheets, instead of showing it on the profit and loss accounts.
For instance, Bharat Forge and Ipca Labs have suffered losses of Rs 29.8 crore and Rs 19.9 crore, respectively. Moreover, a few other companies have used schedule VI of Companies Act 1956 to shield their profit numbers. Reliance Communications has booked Rs 824 crore under carrying cost of fixed assets on its balance sheet for the December quarter.
IT and pharma sectors, with higher exports, dominate the sample list. The list includes 12 IT and five pharma companies. Among these, TCS reported a forex loss of Rs 251 crore for the December quarter. Among pharma companies, Ranbaxy has reported a record forex loss of Rs 953 crore for the quarter.
(With inputs from Kiran Kabtta and Joesph Pereira)
While some companies have used accounting provisions to treat forex losses differently, they have mentioned the numbers in notes to the accounts. The same set of companies had suffered a combined loss of Rs 2,500 crore in the three months ended September 30 and Rs 1,761 crore in the June quarter. Exporters sell their dollar receivable forward to hedge against possible decline of the dollar. However, the dollar rose in the last quarter and at a rate that was faster than they had expected.
When the local company receives the money from the foreign buyer, it sells the dollar at the prevailing market rate and simultaneously settles the forward contract with the bank. Since the dollar has gained, the company ends up paying money to the bank. For forward contracts which would mature at a later date, the company has to account for the mark-to-market loss. As far as dollar loans are concerned, the exchange loss which crops up in the local rupee balance-sheet is shown by providing the amount in the company���s profit and loss statement.
The rupee slipped by nearly 4% during the last quarter and around 8% in the September quarter. Out of the total loss of Rs 3,742 crore, more than two-third (or Rs 2,458 crore) is on account of currency hedging practices while the balance is attributed to revaluation of dollar liabilities. Companies use the misleading term ���hedging losses��� in referring to contracts where they have run out of money or have lost out.
It primarily reflects the missed opportunity or the loss suffered by locking at an exchange rate which is less attractive than the market���s.
Some companies have been able to protect their net profits by using the accounting standard AS30. The standard allows companies to book the hedging loss under hedging reserves on their balance sheets, instead of showing it on the profit and loss accounts.
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For instance, Bharat Forge and Ipca Labs have suffered losses of Rs 29.8 crore and Rs 19.9 crore, respectively. Moreover, a few other companies have used schedule VI of Companies Act 1956 to shield their profit numbers. Reliance Communications has booked Rs 824 crore under carrying cost of fixed assets on its balance sheet for the December quarter.
IT and pharma sectors, with higher exports, dominate the sample list. The list includes 12 IT and five pharma companies. Among these, TCS reported a forex loss of Rs 251 crore for the December quarter. Among pharma companies, Ranbaxy has reported a record forex loss of Rs 953 crore for the quarter.
(With inputs from Kiran Kabtta and Joesph Pereira)
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