How Singapore firms will be hit by rising market fears in India

Widening current account deficit bites.

According to CIMB, markets have become very concerned with Indian exposures today as the country is struggling with widening current account deficits.

"All these factors could throw a spanner into the works for corporate profitability, so there is certainly reason to be concerned. We leave out stocks with Thai exposure, as our regionalstrategists do not see Thailand’s current account deficit as being in the same vulnerable position; they view Thailand more as a valuation risk on the back of its lofty expectations," said CIMB.

CIMB listed out Singapore-listed names with the most India exposures, in descending order of exposure.

Here's more:

Religare has 100% of its income and assets based in India, leaving it exposed to currency movements. However, management has hedged its cash flow for FY14 using forwards at an average contracted rate of Rs47.28to the S$.

Hence, the impact on P&L is mitigated. However, we note that RHT has a S$60 million loan facility denominated in SGD. RHT does not hedge its balance sheet.

We estimate that at the current exchange rate, its gearing ratio will rise from 9% to 10%. This is still below industry average. We maintain our Outperform call with a target price of S$1.07, based on
DDM valuation with discount rate of 12%.

Sarin Tech derives 77% of its revenue from India and has 69% of its fixed assets deployed in India. Earnings are predominantly in US$, so there is no margin impact.

However, the continued devaluation of the Rs and bank credit tightening do not bode well for the Indian consumers. Reduced purchasing power may crimp Sarin’s customers’ sales to end-users.

Some of that drag may be mitigated with new products where Indian customers can afford smaller upfront costs with pay-per-use additional charges. Sarin’s monopolistic position will also enable the company to defend margins better, but cannot shield it indefinitely from a dramatic macroeconomic slowdown. We rate Sarin Outperform with a target price of S$1.98, based on 16x P/E.

India accounts for 12% of SingTel’s PBT and 16% of our SOP-based target price. We reckon that there could be a small impact on revenue and opex from the depreciating currency, though the usage of mobile telephony has proven to be resilient in previous inflationary periods. Singtel is a
Neutral with an SOP-based target price of S$3.80.

Wilmar has 6% of its total trade receivables coming from India (end-12). The group has hedged most of the currency risks of its operations. Most of its revenues (palm oil exports) and feedstock costs (CPO) are US$-based, hence, there is a natural hedge in downstream operations.

Overall, we see the currency risk exposure to be minimal to slightly positive for its plantations division, but this could be partially offset by currency
translation risk from its net investments.

Wilmar owns some India associates but that is only a minor 0.3% of assets. Wilmar is rated Outperform with an SOP-based target price of S$3.74.

DBS had some NPLs coming from its India portfolio in 1H13. We estimate that India accounts for 4-5% of group assets and DBS said that the Indian SME book accounts for ~6% of its Indian loan book. This implies that the current problem area in DBS (Indian SME) is only 0.3% of assets.

However, if India’s economic problems broaden out to the rest of the country’s economy, NPLs could rise further. DBS said that 40% of the Indian book is trade finance, 50% is Indian corporates, and 10% is Indian SMEs.

Theoretically, current NPL problems could broaden out to the larger Indian corporates (~2.2% of assets), bring up its problematic loans in India to about 2.5% of assets; potential pushing up DBS’s NPLs higher than peers. We rate DBS as Outperform, with a DDM-based target of S$19.07.