Re climb not all bad news; loans get profitable

The rupee may be the devil for IT companies, but a pleasant surprise for many others.

For much of India Inc that has dollar and yen loans, first quarter results may actually show a sharply higher 'other income', as Indian companies are spinning profits out of loans in their Q1 results.

Large amounts of ECBs, 16 billion in FY07 and 6.6 billion in the Jan-March quarter.

Much of these are yen loans taken when the  dollar was at Rs 44 and at 118 yen.

From March 31 to June 30, the dollar has slipped from Rs 43.45 to Rs 40.60,  a fall of 7%.

While the yen has slipped from 117.75 to 122.40, that's a drop of 4%. For Indian companies, this means their yen loans in rupee terms, will get smaller by 12%, QoQ. And if these loans are unhedged, the fall in the rupee value of the loan will show up in the loan revaluation account in their Q1 results.

It will be included in the net forex gain and get added to other income. The list of companies that took loans in the Jan-March quarter include marquee names like Rel Comm, Reliance Industries, Bharti Telesystems, JP Associates, HDFC, Jet Airways, HPCL, Rajesh Exports, Bajaj Hindustan, GMR and NTPC.

While strictly, these gains can acrrue to anyone who has taken a foreign loan last year, it is likely that loans taken in 2006 were hedged. But companies, that took their forex loans in the Jan-March quarter are unlikely to have hedged and may hence report gains to the extent of 12% of their loans in their forex account.