New Delhi: The rising rupee is hitting software and BPO companies so much so that most companies might not be able to stick to their earnings guidance.
Rustow Ravanan, Chief Financial Officer at Mindtree Consulting, is a worried man. For every one per cent that the rupee appreciates against the dollar, his margins are shaved off by 50 basis points.
And with the rupee rising by almost 7 per cet since March this year, Ravanan says he will find it difficult to stick to his earnings forecast for the April-June quarter.
“If the same level sustains, then obviously there would be an impact to the results we have guided for. Our guidance was on the basis of 42.25," Ravanan was quoted by moneycontrol.com.
Mindtree has USD 25 million worth of rupee hedges at Rs 45.30 to the dollar. It is now looking at longer term hedging contracts of two or three years. Companies like Mphasis are considering other ways to insulate themselves.
Alok Mishra, CFO, Mphasis BFL Ltd,said, “The other option would be to go in for cash-flow hedges as against balance sheet hedges. We are looking at that pretty actively. The other option is longer term. If you are expecting longer term appreciation in the currency then you try and build in foreign exchange variable clauses in contracts."
Mishra says this will give him a chance to re-negotiate rates midway. This is crucial because 70 per cent of overall IT exports are earned in dollars. That means a 7-8 per cent rise will eat half a billion dollars of the industry's earnings. That is the reason why software CFOs are worried these days
With inputs from moneycontrol.com
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