Most of the rated Indian non-financial companies have sufficient buffers to withstand the rupee depreciation against the US dollar, said Moody's Investors Service on Tuesday.
According to Moody's 11 of the 22 rated India-based companies either have natural or a combination of financial and natural hedges that mitigate their exposure to rupee weakness.
For these companies, a large proportion of their revenues and costs are denominated in US dollars, which protects them from any adverse currency movements.
"Another three companies, the state-owned refining and marketing companies, also benefit to some degree from natural hedges. Both feedstock costs and product prices for Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited are denominated in US dollars," said Moody's.
However, in the last few months, the benefit of natural hedges has been limited by fuel price caps in the country. Rising crude oil prices along with rupee depreciation increased feedstock costs but the companies' revenues have not increased at the same pace. As a result, their profitability and credit metrics have weakened, the global credit rating agency said.
Moody's believes that this situation is temporary and does not expect fuel prices to be capped for an indefinite period.
"Once fuel prices are allowed to align with international market prices, we expect natural hedges to continue to protect the companies from currency depreciation," Moody's added.
As regards the remaining eight rated companies, Moody's said they either use financial hedges to manage their exposure to US dollar debt costs or have relatively low exposure to rising US dollar debt costs.
Three rated companies, Oil and Natural Gas Corporation Limited, Indian Oil and Vedanta Resources Limited together have around $1.9 billion of rated US dollar bonds maturing over the next 12 months through November 2023.
Capital markets are volatile and investor appetite remains selective, so refinancing risks will remain elevated particularly for high-yield issuers such as Vedanta, Moody's said.
Vedanta accounts for around 47 per cent of these upcoming bond maturities. Large maturities in April and May 2023 expose the company to a high degree of refinancing risk, which was the main driver of the recent downgrade of its corporate family rating (CFR) to B3 from B2, Moody's added.