Pakistani rupee has come under considerable pressure against US dollar on account of more than expected weakness in the current account while, financial account has also failed to provide any support. Resultantly, the country’s foreign exchange reserves have declined to $16.7 billion for the week ending on December 02, from the high of $18.3 billion touch in mid-July. In addition, IMF’s loan repayment of $1.2b due in 2HFY12, with government showing intentions of not seeking new loan, is also weighing its weight on rupee-USD parity. “Resultantly, rupee has depreciated by 4.0 per cent against the green back in FY12YTD,” observed the analysts at Topline Research. In this scenario, the analysts said their initial assessment of rupee depreciating by 4-5 per cent against the US dollar in FY12, had turned out to be on the lower side. “We are revisiting our rupee-USD parity assessment,” they said.
Incorporating the recent developments that is more than expected, weakness in the current account (due to adverse commodity price shock), strained finance account (reduce FDI, outflow in portfolio investment and debt repayments particularly, towards 2HFY12). “We believe, rupee would depreciate by 7 per cent in FY12 to close the year around the levels of rupee 92 per USD in June, 2012. This is inline with last 20-yrs (FY91-11) average depreciation of 7.1 per cent, while it is above the last 10-years average of 4.1 per cent,” the analysts said.
POSITIVE IMPACT ON E&PS, IPPS, TEXTILE AND CHEMICALS SECTORS: With the dollar dominated revenue stream, we expect Oil and Gas E&P sector to benefit from the prevailing phenomenon. Within the sector, Pakistan Oilfields Limited (POL), stands out to be the chief beneficiary on account of higher portion of oil in its revenue mix, while positive impact on PPL remains on the lower side. Similarly, IPPs’ ROE component is indexed to rupee-US$ parity and thus, rupee depreciation would yield positively for listed IPP sector.
Furthermore, rupee-US$ parity, Pakistan’s textile exports would yield better returns in absolute terms benefiting export oriented companies.
With product prices and margins based on USD (PTA), LOTPTA would benefit from decline in rupee. However, this impact would be limited as PX, the primary raw material for PTA, would also be imported and exchange losses on $30 million foreign loan.
NEUTRAL TO NEGATIVE ON OMCs, AUTOS AND CEMENT SECTORS: For OMCs, sector would enjoy higher absolute margins on deregulated products like, furnace oil rendering into improved gross margins. For refinery sector, rupee depreciation would render into higher deemed duty in absolute terms. However, for both the sector exchange losses on account of higher reliance on imports will offset the incremental benefit. After continuous rise in Japanese Yen, rupee deprecation would further increase the import bill for auto assemblers, thus, adversely impacting the sector gross margins. Moreover, sector’s ability to pass on the cost pressures to final consumer would remain under question in heightened regulatory risk environment. Thus, we expect the phenomena to have a negative bearing on the sector. The recent depreciation of Pak rupee against USD would have a negative impact on cement sector as coal, major component, is an imported commodity. However, this impact would nullified for companies like Lucky, having higher export share in the revenue mix.
NEUTRAL IMPACT ON FERTILISER SECTOR: For fertiliser sector, rupee devaluation will have no major impact on urea manufacturers since, local urea prices are at approx 35 per cent discount and are primarily a function of local gas prices and curtailment. For producers, having DAP in their product mix (FFBL), the devaluation would slightly augment its profitability, given higher cost on imported phosacid will be more than compensated, by the gain on DAP prices.
