The effects of appreciating Indian Rupee in Q1 - A snapshot - Part 2
With more software companies announcing their Q1 results, the impact of rupee appreciation is clearly visible. Some more snippets on this issue.
- Wipro, India's third largest IT firm, has weathered a strong rupee to protect its operating and net margins during the first quarter (Q1) of the fiscal year 2007-08. Though the rising rupee impacted the company's sequential operating margin by 250 basis points (0.25 percent) in Q1, a healthy revenue growth of 35 per cent in dollar terms ($726 million) year-on-year (YoY) by its flagship IT division enabled it to beat the guidance of $711 million. Admitting the adverse impact of a strong rupee on its margins, Wipro's chief financial officer (CFO) Suresh Senapaty said operational improvements helped the company to partially offset the pressure on profitability arising out of rupee appreciation and limit the decline in operating margin by 250 basis points quarter-on-quarter (QoQ).
- The Hyderabad-based Satyam Computer Services Ltd., which is targeting to join the $2-billion league this fiscal, suffered a sequential slip of 3.88% in net profit for the first quarter ended June 30 to touch Rs 378.32 crore. On the year-on-year basis, the company posted an increase of 6.8% in net profit. The company did manage to put in place buffers to minimise the rupee shock. Although the impact of the rising rupee was to the tune of 400 basis points (bps), the company managed to restrict the impact to 64 bps. The company’s operating margins dropped by 64 bps in Q1 FY08 against the sequential quarter and 218 basis points when compared to the same quarter last year. The Indian currency has surged by nearly 7% against the dollar in the first quarter with every 1% rise shaving off 30 basis points at the operating margins level. Addressing the media, Satyam chief financial officer V Srinivas said, “In dollar terms, we have grown by 10% and rupee terms, the growth is 3%. The 7% difference represents the rupee impact. Revenue would have been higher by Rs 138 crore if the rupee impact was not there.” Explaining the various measures to stem the rude rupee shock, Mr Srinivas said, “Margins took a knock of 230 bps due to rupee, 100 bps on higher visa expenditure and 70 bps on restricted stock options. We could offset it by 330 bps on increased prices, higher offshoring and improved loading factor. The net margins impact was 64 bps.” Talking about forex management, Mr Srinivas said, “We have currently hedged over $750 million, bulk of which is under option-based contracts. Forward contracts account for only $175 million. But hedging does not help in improving operating margins. It only comes in handy to lower translational losses.” Currency hedging has helped Satyam bring down the translation loss to Rs 96 crore.
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