LKR depreciation benefits exporters, forex earners
Sri Lankan export companies and other forex-earning firms are posting hefty results, benefiting from the currency depreciation.
Export companies in major conglomerates, plantation companies and logistics firms are recording unprecedented profits with analysts saying that the results show the bulk of their net financing income generated through depreciation of the local currency. Companies such as Lanka Indian Oil Company recorded impressive results due to the fuel price hikes backed by the currency depreciation.
An analyst noted that assuming a company has US$ 1 million cash (in US$) as at 31 December 2021, when the exchange rate was Rs. 200/US$, it would be shown in the books (in rupees) as an asset worth Rs. 200 million as at 31 December 2021.
Assuming the same US$ 1 million is present as at 31 March this year, when the exchange rate is Rs. 300/US$, it will be shown in books as an asset worth Rs.300 million as at 31 March. Difference between Rs.300 million and Rs.200 million is a translation gain and shown as a profit of Rs.100 million in P&L for the three months ended 31 March 2022.
However, assuming the same US$ 1 million is still present as at 30 June 2022 but now the exchange rate is Rs.360/US$, it would be reflected in rupee accounts as an asset worth Rs.360 million as at 31 March 2022.
“Difference between Rs.300 million and Rs.360 million is another translation gain, and shown as a profit of Rs.60 million in P&L for the three months ended 31 March 2022,” the analyst said, noting that for the six months, the total translation gain is now Rs.160 million in Sri Lankan rupee accounts, although there isn’t a change in the dollar amount. He added that any company with export earnings could sit on their dollars and make extra profits.
A case in point is companies like Renuka Hotels which is estimated to have held nearly $20 million as at 31 December 2021. The reverse is true in the case of US$ debt, as with Dialog Axiata.
Analysts point out that such gains and losses are less likely from July onwards as the currency is more stable, and could even reverse if the currency strengthens.
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