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Can euro gains offset dollar dents for IT exporters?

Bharat Kumar

CHENNAI, Aug. 15

RECENT trends in exchange rate fluctuations indicate that software exporters with more revenues in the euro denomination would be better off than those with a major chunk of revenues in US dollars.

On May 2, this year, the dollar traded at Rs 48.96 and by Aug 12, had depreciated to Rs 48.57. In the same period, the euro moved from Rs 44.25 to Rs 47.33.

This means, if a company had received an export order to the tune of $2 million and if the dollar depreciated against the rupee, as above, in the time till billing is done, the company stands to lose Rs 7,80,000.

Deutsche Securities, in the August edition of its monthly newsletter, says, "Depreciation of the dollar versus the rupee remains a risk (for software companies' earnings)."

According to Deutsche Securities analyst, Mr Bhupinder Ahuja, "Typically, revenue guidance will not be impacted if given in dollars. But, margins will be impacted, as a large amount of costs are in rupees. On an average, a one per cent appreciation of rupee can reduce earnings per share, for bigger companies, by about two per cent."

Some analysts feel that hedging against unfavourable movement of rates in future may not fully protect companies from this trend. For, in the hope that the rupee weakens again, companies typically do not cover their exposures fully.

Answering queries from Business Line, an Infosys Technologies spokesman said, "We believe that appreciation in US dollar against the rupee may not have any material impact on our earnings. Our treasury policy allows us to hedge our receivables depending on the needs. The currency markets are very volatile at this point of time and it is difficult to say whether our hedging strategy would fully cover our exposures."

However, Wipro feels that that the rupee appreciation against dollar could impact the current quarter's earnings. A spokesman says, "Our realisation in dollars for the last quarter was around 75 per cent and the balance is primarily in Pound sterling and Japanese Yen. To the extent these currencies have appreciated against the US dollar, the impact of rupee appreciation against the dollar will be reduced. We have forward covers taken for our dollar inflows, which is normally 6 month forward." As of June 30, 2002, for Wipro, the amount of US dollars sold forward was $70 million.

However, not all companies opt for the forward cover. A Polaris spokesperson said, "As a corporate policy, Polaris does not hedge against exchange fluctuations at future date." She added, "The dollar-rupee exchange fluctuations have a very marginal impact on revenues and this will again be partly offset by our revenues from Europe."

Says Mr V. Shekhar Avasthy, Assistant Manager, Software and Services Analysis Division at IDC India, "At the time of commissioning a project, costing/pricing is done in foreign currency terms and it is future exchange rate fluctuations independent. In case the rupee becomes stronger at the time of billing, which rarely happens, then the results are relatively bad. In this case, if the rupee remains strong through this quarter, then earnings will be negatively impacted. Typically, the figures are converted from the dollar or the euro to rupees at the time of declaring results, at the prevalent rate. If at that time the rupee is strong, the results would be negatively hit."

He adds, "What one gains also depends on the volume of billing, apart from the conversion rates. So, a company with more revenues from Europe than from the US, could do well if it has sufficient billing in euro for that period."

Mastek has had more exposure to the European markets than to the US.

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