IT firms head for subdued quarter
The recent decline in the value of the rupee against the dollar may not bolster the quarterly financial results of India’s IT companies in April-June, experts tracking the sector said. HT reports.Updated: Jul 04, 2013 23:16 IST
The recent decline in the value of the rupee against the dollar may not bolster the quarterly financial results of India’s IT companies in April-June, experts tracking the sector said.
Since the primary source of income for these companies is exports to Western countries, it was expected that the depreciated rupee would add to their income. This may not happen.
“We expect a relatively subdued performance from the companies under our coverage with volumes for the top four (IT) companies expected to rise by 1% to 3%. Cross-currency fluctuations will likely impact dollar revenue growth by about 0.5% to 0.7%,” said Dipen Shah, an analyst with Kotak Securities.
Ajay Srinivasan, director, Crisil Research, said it would take some time for the benefit of the rupee’s depreciation to reflect in profit margins of the IT services companies.
“We project margins for tier-1 companies to decline by 50-100 basis points (bps) in the April-June quarter due to salary hikes and pressure on billing rates.”
Moreover, gains due to the rupee depreciation have been blunted by the currency hedges of these companies, in which dollar-rupee exchange rates are fixed beforehand and any gains that may arise due to the rupee’s fall do not result in windfalls for the Indian firms.
However, others feel that some benefits of the dipping rupee may percolate through in this quarter itself.
“Overall bottom-line of the company will definitely be aided during this quarter as currency, on an average basis, has depreciated for the full quarter. In addition, most of the IT companies realise their rupee revenues towards the end of every quarter. In the April-June period, June was the month where the rupee witnessed maximum volatility with sharp depreciation,” said Ankita Somani, research analyst, Angel Broking.