Currency swings add to IT woes
Vendors see pricing under pressure as UK currency weakens.
Our Bureaus
Bangalore/Mumbai, Jan. 20
The IT sector's woes have further compounded with the appreciation of the rupee
against the pound sterling. The rupee appreciated further by 3.6 per cent
against the pound to Rs 69.56 on Tuesday, breaching the Rs 70-mark, the highest
since 2001.
The pound fell to a six-year-low against the dollar as traders bought the
greenback on concerns over the troubled UK banking sector and the economic
outlook. Besides the uncertainty in the US, their largest market, Indian
vendors have been forced to deal with the volatile cross currency fluctuations
in the past two quarters.
"It (weakening Pound) will impact the reported dollar numbers, but it is too
early to comment," said Mr V. Balakrishnan, Chief Financial Officer of Infosys
Technologies Ltd. About 11 per cent of its revenues are billed in pound and 6.7
per cent in euro.
Adequate cover'
"We will take adequate cover," Mr Balakrishnan said. Infosys reported a forex
loss of Rs 218 crore for the December quarter largely due to the volatile Euro
and Pound.
In the December quarter, the pound sterling lost 18 per cent against the
dollar. From October 1, 2008, till date, the rupee has appreciated 17 per cent
against the pound.
Indian IT firms bill less than a fourth of their earnings in currencies such as
pound sterling and euro. "Cross currency volatility will impact their dollar
term revenues. The extent of impact will depend on the exposure to these
currencies," said Mr Harit Shah, analyst at Angel Broking. "Companies might
increase cover for other currencies. While this will give them some protection,
their hedging strategy might become more complicated," Mr Shah said.
Close watch
Mr S. Mahalingam, Chief Financial Officer and Executive Director, TCS, felt
that the rupee movement on daily or a weekly basis did not impact the company.
"What is more critical is the movement of the pound in the last three months.
The Pound-Rupee rate towards the end of the quarter is crucial. That is when
you do the mark-to-market."
"But, we do closely watch currency moments as we get 20 per cent revenues from
UK. In order to counter it, we have to work on better resource allocation and
it could also have an implication on our pricing strategy".
Already discounted
Firms such as Tech Mahindra Ltd and Mastek Ltd, which earn a higher portion of
their revenues from Europe, are likely to be more impacted.
"We have already discounted the adverse effect of these currency movements in
our quarterly guidance. We hedge for revenues expected in the next one to
one-and-a-half months as the currency has been very volatile," said Mr R.S.
Desikan, Chief Financial Officer and Finance Director of Mastek Ltd, which
earns two-thirds of its revenues from Europe. He added that typically, a one
percentage point rise in the rupee against the pound has a 40-45 basis point
impact on Mastek's margins.
"However, if the rupee continues to appreciate further in the long run, there
will be more pressure on us to improve our efficiencies," Mr Desikan said.
http://www.thehindubusinessline.com/2009/01/21/stories/2009012151420400.htm
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