There are two different exchange rates of U.S. Dollar against Rial in Iran, official and unofficial exchange rate. Official rate has been allocated in imports of essential goods and services which determines by the government; however, unofficial exchange rate that determines in the free market according to supply and demand in the market. The unofficial exchange rate has increased by 15% from 21st March 2017-2nd January 2018, and the official exchange rate has enlarged by 11% during the mentioned period. On 2nd January 2018, the official exchange rate of Dollar was 36,095 Rial and the unofficial exchange rate was 43390 Rial. Central Bank of Iran has a specific instruction to calculate the official exchange rate. It assumes a portfolio as the traded currencies in certified exchange houses, then, official exchange rate has been calculated based on primary currency rates after reduction of commission as well as two percent of calculated rate. These two different currency rates and allocating the official rate to some of essential goods lead to lack of transparency and propagation of corruption. As a result, the government is deciding to unify the exchange rate in order to overcome the mentioned problems and also through this they can support domestic productions and prevent import of unnecessary goods. As a result, it’s so important to predict the effect of increase in official exchange rate on the companies.
Petrochemical industry has been influenced a lot in Iran by increment of official exchange rate, because raw materials and products have been priced by official and unofficial exchange rate respectively. As a result, the petrochemical companies have gained an easy profit due to the difference between two exchange rates, the lower rate for raw materials and the upper one for products. Then the increment of official exchange rate will increase the petrochemical companies’ cost of goods sold and also their earning per share will collapse.
The second one is pharmaceutical industry that its earning per share would be decreased as same as petrochemical industry due to increment of raw materials’ prices in production process as their raw materials prices follow the official rate of Dollar, as a result, their margin will be decreased.
The third one is tire manufacturing industry. Official exchange rate has been allocated to forty percent of imported natural rubber and also, some of its artificial rubber, as a result, increment of official exchange rate would not be good news for this industry and their earning per share would be plunged.
The other one is oil refining industry that not only its raw material, but also its productions have priced by official exchange rate, by this way, its earning per share would be soared by increment of official exchange rate although the profit margin would not be increased due to increment of sale and cost of goods sold.
The last ones are contracting and excavation industries which their contracts are based on official exchange rate, by this way, their earning per share would be increased by increment of official exchange rate.
The market share of important industries in Iran’s capital market are as follows in 2nd Jan 2018:
As a result, oil refining industry is the most important industry which has been influenced by increase in exchange rate in a positive way. The forecasted EPS for some major companies have been calculated based on the same data as this year just in different official exchange rate of Dollar in both of sale of products and cost of goods sold. It’s crystal clear that how much they gain more when the official exchange rate soars.
*Earning Per Share
**Assumption: official exchange rate of Dollar for coming year = 39,000 Rial and official exchange rate of Dollar for this year = 33,000 Rial