RCom, Tata Motors face highest MTM risks

Noting that Indian firms face a high risk of mark-to-market losses due to a volatile forex market, a brokerage firm has named telecom major Reliance Communications and auto giant Tata Motors among five blue-chip companies estimated to have suffered the most during 2008-09.

In its quarter-end analysis for the period ended March 31, brokerage and equity research firm Religare Hichens Harrison (RHH) has also named Punj Lloyd, Bharat Forge and JSW Steel among the five major companies estimated to have been hit hardest by the MTM losses during the just-ended fiscal.

"Five prominent companies with the highest MTM risk are Reliance Communications (114 per cent of adjusted FY09 profit after tax), Punj Lloyd (92 per cent), Bharat Forge (84 per cent), JSW Steel (78 per cent) and Tata Motors (75 per cent of standalone PAT)," the report said.

MTM losses indicate fall in the value of an investment from the book value level to current market price.

"Though the implementation of AS-11 has been deferred to 2011, we believe Indian corporates face a high risk of MTM losses," RHH said in the report.

Reliance Communications is expected to face MTM losses Rs 1,264.9 crore (Rs 12.64 billion) in the fourth quarter of FY09, taking the total MTM for the full fiscal to Rs 5,981.5 crore (Rs 59.81 billion). This could represent 114 per cent of its adjusted full year profit after tax, the analysis revealed.

RCom had already booked MTM losses of Rs 4,716.6 crore (Rs 47.16 billion) till third quarter of the fiscal, RHH said, adding that the loss was not routed through profit and loss account, but capitalised on forex loans.

The report estimated the fourth-quarter MTM booking for Tata Motors at Rs 165.1 crore (Rs 1.65 billion), taking the full-year total to Rs 797.7 crore (Rs 7.97 billion).

The RHH report also revealed considerable MTM risks for companies like MindTree, HCC, Tulip Telecom, Jain Irrigation, M&M, HCL Tech, Tata Steel, Bharti Airtel, India Cement, PFC, Patni Computer, TCS and Wipro with MTM losses ranging 12-73 per cent of full-year profits.

Besides, it said that the losses would be below 10 per cent for companies like Infosys, Idea Cellular, Tech Mahindra, Ashok Leyland and Maruti.

Engineering firm Punj Lloyd's expected MTM booking in the fourth quarter stands at Rs 50 crore (Rs 500 million), while it had booked over Rs 47,100 crore (Rs 471 billion) till the third quarter of FY09. Its total MTM losses could be 92 per cent of its Profit after Tax estimated for the entire fiscal.