To impact fourth quarter results, but situation will be manageable: Analysts
Indian IT (information technology) firms are not unduly worried about the rupee rising against the dollar, at least for now.
The rupee touched a near 19-month high as it soared to 44.97 against the dollar, which pulled down the Bombay Stock Exchange’s IT index by 2.19 per cent.
Stocks of IT bellwethers like Tata Consultancy Services (TCS) was down 1.32 per cent, Infosys Technologies’ stock at Rs 2,643 was down 2.64 per cent and Wipro at Rs 702 dipped 1.92 per cent. A mid-cap IT firm like Patni Computer Systems saw its share price dip 3.22 per cent and Tech Mahindra was down 2.35 per cent.
Analysts feel the currency fluctuation will impact the margins of Indian IT firms’ fourth quarter (ending March 31) results, but this would be manageable.
“I think this level of rupee has been factored in already. We had thought that the rupee will be at 45.50 level. This will have some impact on the revenues. Especially, the cross currency movement will hit the large cap firms. The immediate impact will be on guidance for FY11. If the rupee continues to be at this level, I think Infosys’ guidance (company announces its results in April 13) will not be great,” said Dipen Shah, senior vice-president, PCG (private client group) research, Kotak Securities.
Since January 1 till date, the rupee has appreciated by 3.5 per cent to the dollar. Any one per cent appreciation or depreciation in currency brings a 40-basis-point change in margins. This particular volatility is expected to have a 0.9 to 1.3 per cent cross-currency impact for this quarter, predict analysts.
Other than the rupee appreciating to the dollar, it has also appreciated against the euro and the pound. Euro and the pound have depreciated by 9.2 and 10.6 per cent, respectively, for the period from January 1 to March 30. The dollar has appreciated by 5.7 per cent to euro.
"We estimate a one-1.6 per cent negative cross-currency impact on reported US dollar revenues for the top three IT companies. In case of Infosys, we estimate 4Q10 guidance factors in a 0.4 per cent impact from cross-currency moves. Among other coverage names, Tech Mahindra and NIIT Tech could be impacted by currency movements due to significant European exposure of 56 per cent and 42 per cent, respectively," said Pankaj Kapoor and Srinivas Seshadri from The Royal Bank of Scotland in their report.
“Till it is not a sharp appreciation, I think it is not worrisome. A one to two per cent fluctuation in the rupee-dollar movement is manageable. We think the rupee-US dollar movement will have a 1.5 per cent impact on revenue and the euro and UK pound depreciation will have an impact of one per cent,” said an analyst of a leading broking house.
Currency movement is a huge concern for IT firms, as over 60 per cent of their revenue comes from the US market. A strong rupee impacts the profitability of these firms. For the year 2008-09, TCS’ revenue from the US was $3.5 billion, from the UK £550 million and Europe contributed ¤350 million of the total $5.5 billion export revenues. For the quarter ended December 31, 2009 (third quarter of FY2010), Infosys had 8.4 per cent revenue in GBP, Euro contributed 6.6 per cent and the Australian dollar share was 6.3 per cent of its reported revenue of Rs 5,741 crore.
Analysts are of the opinion that both the investors and IT firms have factored in the rupee to be in the range of Rs 44-45. “I don’t think rupee will go back to the level of 39 that we saw during 2007. But then, commenting on currency movement is risky,” said another analyst on condition on anonymity.
The only concern that remains is at what rate does the rupee rise.
