November 9, 2020 (MLN): The Pakistani Rupee (PKR) has been on an irrepressible, bristling journey for a long time now, thanks to the rising inflow of remittances, reduction in current account deficit as well as the depreciation of USD in general. To be precise, the local currency has appreciated by almost 5.6% in FY21 so far and continues to follow an upward trajectory.
Not only that, the currency went on to achieve a seven month high in July wherein it reached 159.09 / USD in the interbank market. With there being no such indication in the market of a probable reduction in the foreign exchange reserves of the State Bank or an increase in the Current Account Deficit, a report by Spectrum Securities has put forth a prediction stating that the PKR might appreciate further to 155-157/USD.
Now with PKR showing such impressive progress, it is natural that the import oriented sectors of Pakistan, such as Automobile, Pharmaceutical, Chemicals, Food & Vanaspati, Cable & Electric, Engineering Steel, Cement as well as all those sectors that depend on the import of raw material, will benefit significantly.
The Automobile Sector, for instance, is likely to be the biggest beneficiary of this upturn in the local currency as it will not only help in reducing the import bill but also in lifting the profits. For the uninitiated, the auto sector has been witnessing a downturn for a very long time now, mainly due to the depreciation of PKR in the past. This caused the sector to raise the prices incessantly in an attempt to pass on the impact on the consumers.
Similarly, the impact of appreciation in PKR will be reflected in the performance of the Cement Sector too. According to Spectrum Research, the 5.6% appreciation of PKR has resulted in a fuel cost saving of around Rs. 758 million for LUCK, Rs. 486 million for CHCC, Rs. 743 million for DGKC, Rs. 341 million for KOHC, Rs. 747 million for MLCF, and Rs. 441 million for FCCL. Even after accounting for the negative effect of loss on exports, the net impact on the earnings of these companies will still be positive.
On the other hand, sectors such as E&Ps, IPPs, and Textile will have to let go of additional income as their earnings are directly linked to USD. E&Ps revenue, for instance, relies on the international rates of oil whereas Power Generation Companies get impacted by ROE indexation in USD.
While the changes in PKR will have no major impact on the revenue prospects of OMCs, Refineries, and Fertilizer Sector, they will likely incur a one-off exchange loss.
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