In just the last month, the rupee has appreciated by 3.55%, from Rs. 60.740 to Rs. 58.360 a dollar. In that period, the CNX IT Index has slumped 4% while the CNX Pharma Index has slumped 5.70%. In the same period, the Nifty has given a 6.40% return.
Daljeet Kohli of IndiaNivesh has issued a report (pdf) in which he has analyzed what the extent of appreciation is likely to be in the foreseeable future and the impact that it will have on specific Pharma companies.
Daljeet has also attempted to quantify the impact that each unit of INR appreciation will have on the EBITDA and EPS of a few chosen stocks.
Interestingly, according to Daljeet’s calculations, Jubilant Life Sciences will be worst affected with a 7.6% decrease in EPS while Biocon will be the least affected with an impact of only 0.7%. The EPS of Ajanta Pharma & Alembic Pharma is likely to be adversely impacted to the extent of 1.7% each while that of JB Chemicals is adversely impacted to the extent of 3.1%.
Daljeet also points out that some companies like Jubilant Life Sciences, Aurobindo and Glenmark also have foreign exchange borrowings. The appreciation in the rupee benefits them to that extent.
Daljeet has carried out a similar exercise (pdf) for InfoTech companies and computed the extent of impact that the appreciation in the rupee is likely to have on their profits.
At the end, Daljeet concludes that a more dramatic appreciation in the rupee is not expected and that it is likely to remain range bound. The present situation is already priced in. Daljeet advises investors to be contrarian in their approach and to accumulate Pharma and InfoTech stocks as the demand outlook remains robust. There will be a demand for these stocks for Q1FY15 results, he says with a tone of confidence.