What you will learn in this lesson
In everyday talk about the Tehran Stock Exchange, companies get sorted into two buckets: "dollar" names and "rial" names. The split is useful, and it is usually misunderstood. This lesson shows exactly what the label refers to, which specific route the exchange rate and world commodity prices take into the income statement, why a dollar-linked company's profit growth rarely matches the dollar's own growth, and which rules peculiar to Iran's market bend the simple version of the equation. It is written at an advanced level and assumes you are comfortable with reading an income statement and with the basics of valuation.
Definitions
Dollar-linked stock: shares in a company whose selling price is tied, directly or through a formula, to the world price of a commodity and to the exchange rate. Steel, copper, iron ore, zinc, petrochemical products, methanol, urea and refinery products all sit here. The key point: being "dollar-linked" is not about where the company sells, it is about what sets its price.
Rial-based stock: shares in a company whose revenue is built from domestic demand, in rials, with no world price setting the tariff. Banks, insurers, leasing firms, retail, food, pharmaceuticals, carmakers and most of cement and building materials belong to this group.
Applied exchange rate (نرخ تسعیر): the rate at which a company converts its foreign-currency revenue or assets into rials and books them in its financial statements. It is not necessarily the rate you see on the free-market board, and that difference is the source of most confusion about dollar-linked shares.
Operating leverage: how sharply profit reacts to a change in revenue when part of the cost base stays fixed in the short run. The larger the fixed costs, the bigger the profit swing a small revenue move produces.
The mechanism: where profit comes from
The operating profit of a commodity-driven company reduces to a three-factor relationship:
Rial revenue = volume sold × world price in dollars × applied exchange rate
On the other side stand the costs: wages, energy, domestic freight, depreciation and tax, mostly rial-denominated and rising with domestic inflation. Profit is the gap between the two. Three conclusions follow, and the whole lesson lives in them.
One: three independent variables, not one. A dollar-linked company's profit is sensitive to production volume, the world price and the applied exchange rate, and those three do not move together. The dollar can rise while the product's world price falls, or both can rise while a power cut has already cut output. An analysis that watches only the dollar has ignored two thirds of the equation.
Two: the currency effect is timed, not permanent. When the exchange rate jumps, revenue reprices immediately while rial costs follow with a lag of several quarters. In that window, margins widen. Over time domestic inflation reaches wages, energy and freight, and the margin closes again. So much of any "currency profit" is a transfer across time, not a durable improvement in business quality.
Three: the rial-based stock is the mirror image. A domestic seller also deals with the currency, but it enters from the cost side: imported raw materials, parts and machinery. If it cannot raise its own price quickly, a currency jump closes its margin first. The same shock that is an opportunity for one group is pressure on the other, and that symmetry is exactly why the split is practically useful when building a portfolio.
A worked example (hypothetical)
Suppose company A sells 100,000 tonnes a year at a world price of 500 dollars per tonne, so 50 million dollars of currency revenue. Its applied exchange rate is 150,000 tomans, so rial revenue is 7,500 billion tomans. Its rial costs are 5,000 billion tomans, leaving operating profit of 2,500 billion tomans. Every figure here is hypothetical and exists only to show the mechanism.
Scenario one: the currency alone rises 20 percent. The applied rate reaches 180,000 tomans and revenue 9,000 billion tomans. Costs are still 5,000 billion, so profit reaches 4,000 billion tomans: 60 percent profit growth out of 20 percent currency growth. That is operating leverage.
Scenario two: the currency is flat and the world price falls 10 percent. Revenue drops to 6,750 billion tomans and profit to 1,750 billion tomans, a 30 percent fall. Leverage works in both directions.
Scenario three: the currency rises 20 percent and, a year later, costs rise 20 percent too. Revenue is 9,000 billion and costs 6,000 billion, so profit is 3,000 billion tomans: only 20 percent growth. Comparing scenarios one and three is the main lesson of this section. That 60 percent was never durable.
Now take company B, which earns the same 7,500 billion tomans of revenue domestically and whose costs are 30 percent imported. With the same 20 percent currency jump, its revenue does not change but its costs reach 5,300 billion tomans, so profit falls from 2,500 to 2,200 billion tomans, a 12 percent decline. One shock, two opposite signs.
In the Iranian market
Which exchange rate? Iran does not have a single exchange rate, and exporters mostly supply their currency revenue through the Iran Currency and Gold Exchange Center, where the rate sits below the free market. For scale: on 12 Mordad 1405 (3 August 2026) the dollar remittance rate at the Exchange Center was around 153,600 tomans while the free-market dollar was around 192,900 tomans, so the Exchange Center rate was close to 80 percent of the free rate. The implication is direct: when the free-market dollar jumps 10 percent, an exporter's profit does not necessarily rise 10 percent, because it is translated at a different rate. We separate these rates in the lesson Iran's Multiple Exchange Rates, and the current rate is on the dollar price page.
Domestic sales can be dollar-linked too. A large share of steel and petrochemical output is traded inside the country on the Iran Mercantile Exchange, but under formulas tied to the world price and a reference exchange rate. A company can therefore export almost nothing and still behave entirely like a dollar name. Read the label off the pricing formula, not off the export share of sales.
On the cost side, the policymaker decides, not the market. Industrial energy inputs, from petrochemical gas feedstock to electricity, carry administered prices. A revision to those rates shifts the margin of an entire industry without the dollar or the world price moving at all. In the same way, seasonal power and gas restrictions hit the third variable, production volume, and can cancel out the effect of an expensive currency.
On the rial side, administered pricing. In parts of domestic industry such as cars and pharmaceuticals, the selling price is approved by a regulator. Input costs rise with the currency and with inflation, but revenue rises only with a lag and only by the approved amount. For this group the main risk is neither the world price nor the exchange rate; it is the gap in time between cost inflation and price approval.
Banks are an in-between case. A bank's operating income is rial-based, but its balance sheet can hold foreign-currency items. Gains from translating those items are non-cash and usually one-off, and should not be read as recurring operating profit.
Common mistakes
"The dollar rose 20 percent, so the dollar-linked stock rises 20 percent." Three links are missing from that chain: the effective applied rate is below the free rate, costs rise afterwards, and a share price responds to expected future profit rather than today's.
Treating "export-driven" and "dollar-linked" as the same thing. The right test is the pricing reference. A company selling entirely at home but on a world-linked formula is dollar-linked, while an exporter whose product has no reference world price is not necessarily so.
Assuming rial names are immune to the currency. They are not immune. The sign of the effect is simply reversed, and it arrives with a delay.
Reading translation gains as operating profit. A gain on translating foreign-currency assets is neither cash nor repeatable, and it should be stripped out when computing ratios such as price to earnings.
Forgetting volume. When a power cut or a line stoppage reduces the quantity sold, an expensive currency will not rescue profit. Volume is the quietest variable in this equation and the source of most surprises.
Summary
"Dollar" and "rial" are not sector labels; they describe the route a price takes into the income statement. A dollar-linked company's profit is the product of three independent variables, and the currency's effect on it is timed rather than permanent, while a rial-based company is hit through the same channel with the opposite sign. If you compress this lesson into one line: before asking "is this a dollar stock?", ask "what sets its selling price, and how fast do its costs chase it?"
The previous lesson in this series, Valuing a Stock With Three Tools: Where NAV, Forward P/E and P/S Each Break Down, introduced the tools that turn this profit into a price.
