Hedge an anti-depressant for rupee-hit services
Infosys results have a key takeaway for the finance heads of companies in the offshore services businesses – they need to hedge more to withstand the heat of rupee appreciation. The rupee has appreciated by about seven per cent since last January.
Infosys, which derives 73 per cent of its revenues from the US in dollars hedged $925 million in receivables this quarter, nearly twice the $470 million it did in the previous quarter.
“The sharp appreciation of the rupee against all major currencies such as the dollar, euro, pound and yen have impacted our operating margins during the quarter,” said V Balakrishnan, chief financial officer, Infosys.
Analysts think companies that derive a large chunk of their revenue from overseas, like IT and business process outsourcing need to ramp up their hedging portfolio to mitigate the dent on profits arising from a stronger rupee.
Citing an instance, they said while Infosys managed to match market expectations, Satyam and HCL may do better in saving margins from a stronger rupee, as they are hedged at a higher level.
“Satyam has a greater chance of meeting its guidance target, which is based on a rate of Rs. 42.3 a dollar, against Infosys’ target which is based on a rate of Rs. 43.1,” said Harit Shah, IT analyst at Angel Broking.
“Unlike the big three of Indian IT industry (TCS, Wipro, Infosys) Satyam has a higher proportion of its receivables hedged, and thus the near-term impact of rupee appreciation would be the lowest in its numbers,” said an analyst at a leading Mumbai-based brokerage house, who did no want to be identified. She added that Satyam’s wage hikes are effective October, unlike Infosys, TCS and Wipro who give increases in the April quarter.
Some analysts opine that TCS won’t be impacted much by the rupee as it has lesser exposure to the US markets. Currently, only 52.43 per cent of its revenues come from the US. “All companies generally hedge 50 per cent of their revenues and the other 50 per cent comes under natural hedge, which means revenue accrued from on-site projects,” said an analyst at a leading brokerage house.