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Indian firms feeling impact of naira devaluation

By on November 30, 2014

The recent devaluation of the naira announced by the Central Bank of Nigeria (CBN) is hurting the share prices of some companies in India.
The Wall Street Journal disclosed this in a report yesterday.
The CBN on Tuesday announced the adjustment of the mid-point of the naira’s official trading band from N155/$1 to N168/$1 and widened the band significantly from +/- three per cent, to +/- five per cent.
In addition, the central bank also raised the benchmark interest rate to 13 per cent, from 12 per cent, the first change since October 2011, and the cash reserve requirement (CRR) on private sector deposits was raised to 20 per cent, from 15 per cent.
But the CRR on public sector deposits was unchanged at 75 per cent.
This, according to the report was bad news for the handful of Indian companies that have in recent years built sizable businesses in Nigeria.
“The currency devaluation would be inflationary and affect consumer demand in Nigeria and the Indian companies that export to the African country,” an analyst at Mumbai-based brokerage Sharekhan, Nikhil Deshpande.said.
Prominent Indian companies which likely to feel the pain are Bharti Airtel Limited, India’s largest mobile phone company, which made a big foray into Africa in 2010, and Bajaj Auto Limited, which makes two and three-wheel motorcycles and exports to Nigeria.
Bharti stock had fallen by four per cent in the last two trading sessions to 385.85 rupees  a share, while Bajaj shares fell by three per cent to a two-week low of 2,570 rupees on Wednesday. The stock recovered Thursday tracking other auto companies, to end at 2,648.80 rupees.
Both companies had moved into Africa within the last five years in a bid to capitalise on the growing demand from the continent’s consumers.
Bharti Airtel had entered Africa by buying Kuwaiti telecommunications company Zain for $9 billion, making it one of the largest overseas acquisitions by an Indian company.
Nigeria now counts as one of Bharti’s largest markets in the continent and contributed about 12 per cent of the company’s consolidated revenue in the financial year ended March 31, according to Mumbai brokerage firm IndiaNivesh Securities.
“The devaluation could lead to deterioration in Bharti Africa’s key performing indicators,” head of research at IndiaNivesh Securities, Daljeet Kohli argued.
He estimated that the Nigerian central bank’s measures could ultimately shave off around 0.9 per cent from Bharti’s consolidated revenue, and 0.3 per cent of the company’s operating profits, for the current financial year.
The impact on Bajaj Auto could be larger. Sharekhan estimated that the changes in Nigeria could cause Bajaj’s total sales volume to fall by 2.3 per cent and profits to decline by 2.7 per cent compared to in the next financial year that starts April 1.
UBS Research had downgraded Bajaj Auto shares, advising investors to sell, because it expects weak earnings growth and potential declines in export margins.
Some other Indian companies which have presence in Nigeria are consumer-goods firms Godrej Consumer Products Limited and Dabur India Limited.
However, stocks of these companies haven’t been impacted because Nigeria accounts for a small share of their overall revenues. Godrej stock has been flat over the last two trading sessions, while Dabur was up one per cent.

 

[ThisDay]