On its way up, the dollar will pinch Bharti hard

Rising dollar may be a blessing in disguise for IT firms, but for Bharti Airtel, country’s largest telecommunications firm, the appreciating greenback is turning out to be a wealth destroyer as the telco could book up to Rs660 crore in foreign exchange losses.

Bharti has nearly $13 billion (Rs62,000 crore) in current outstanding debt, of which about $10.2 billion (Rs45,433 crore) is in US dollars and the rising greenback means higher debt burden for the telco as it will now have to cough up more to meet its interest obligations.

These loans are unhedged and have a floating interest rate, currently at around 2.7%, according to analysts.

Since the end of last quarter, when dollar was trading at around Rs44.70, the foreign currency has risen by over 6% to Rs47.47 as on September 16. Similarly, the Japanese yen has moved up by about 11% against the local currency.
Incremental mark-to-market losses for the current quarter could be around Rs660 crore on account rising dollar and yen, telecom analysts Rohit Chordia and Shyam M of Mumbai-based brokerage Kotak Institutional Equities estimate in their report on Friday.

A Bharti spokesperson declined to comment.

Interest burden has been a drag on the telco’s earnings of late and in the last quarter it was one of the key factors for the Sunil Bharti Mittal led company missing analysts’ earnings expectations.

This quarter, the currency fluctuations could pull down the firm’s net profit to around Rs1,000 crore from the Rs1,215 crore in the last quarter, Kotak analysts estimate. Most of the dollar loans were taken to fund the company’s acquisition of the African telecommunication operations of Kuwait’s Zain Group for $10.7 billion last year. According to analysts, the full impact of currency fluctuations will not immediately show up in company’s profit and loss accounts, thanks to certain accounting practices under the International Financial Reporting Standards, or IFRS, that it follows.

“Even as the outgo will increase on account of the falling local currency, Bharti’s accounting practices lets it route some of the translational losses directly to the balance sheet and hence all of it will not reflect on the firm’s profit and loss accounts,” said an analyst with an domestic brokerage.

Investors, however, appear to have factored in the impact of currency fluctuations on company’s cash flow matrix.

In just over a month, Bharti’s shares have fallen as much as 13%. On August 1, Bharti shares touched a one year high of Rs444.70 on the BSE. 

That is nearly double the fall in broader market, which fell about 7.5% during the same period.