The fall in the value of the Indian rupee against the US dollar helps companies that export most of their produce or services. They get revenue in foreign exchange and US dollar accounts for majority of that earning. The fall in the currency has a direct impact on the earnings per share of export-oriented companies.
Earnings per share or EPS is calculated by dividing the net profit by the number of outstanding equity shares of the company. This is the number that helps determine the share price of the company. The current market price of a company is a multiple of earnings per share.
Here are 5 companies that directly benefit:
1. Infosys—The company gets two-third of the revenue from US. At Rs 66.50 to one US dollar, Infosys earnings per share is expected to be Rs 58.80. Infosys EPS rises by one rupee every time the US dollar gains a rupee in value, according to most analysts. At 63.50, Infosys would have reported EPS of Rs 55.20.
2. Coal India—As rupee loses value, importing coal becomes expensive. Analysts at SBICap Securities, a stockbroking firm, believe that fear of further pressure on the rupee could discourage imports. This means Coal India would see a boost in demand for domestic coal that it produces.
3. TCS: Tata Consultancy, the biggest software services exporter, will see EPS growing to Rs 126.60, according to Kotak Securities. TCS revenue in US dollar terms has grown at a rate of close to 20%, according to another IT sector analyst.
4. HCL Technologies: Another software services company that benefits from the fall in the rupee. According to an analyst at Nomura, a Japanese bank, if the current rates around Rs 66 continue to hold, earnings per share of HCL Technologies could jump 6.3% for the year 2016-17.
5. Unichem Laboratories: Many analysts are optimistic about pharmaceutical companies that sell in the US market. The biggest beneficiaries are big companies like Sun Pharmaceuticals, Dr Reddy’s Laboratories and others. Unichem Laboratories is expected to increase the share of the US business significantly over the next two years. In an environment where the dollar gains in value, Unichem could benefit going forward, according to an analyst at SBICap Securities.