The rise of the rupee to an 18-month high against the US dollar on Monday to a level of 65.0350, will very likely hurt earnings of several exporters in Q4 FY17 including IT services providers and drug manufacturers. Auto major Bajaj Auto, for instance, had earned an average realisation of R67.7/$ in Q3FY17; the firm had pencilled in average realisations of over R68 in Q4FY17. Following the results announcement for Q3FY17, chief financial officer (CFO) Kevin D’Sa had said he expected realisations to be in excess of 68 in Q4FY17. Dr Reddy’s, similarly, had hedged its foreign currency loans expecting the rupee to not breach 67.6 on the upside.
“The foreign currency cash flow hedges for the next six months in the form of derivative term loans for US dollar are approximately $135 million and largely hedged around the range of R67.6 to R70.4 for the dollar,” Dr Reddy’s CFO Saumen Chakraborty had said in February.
However, with just three days to go for Q4FY17 to end, the USDINR average for the quarter has already dipped to 67.1.
In FY16, Dr Reddy’s had reduced its short US dollar hedges using forward contracts to just $97 million from $176.9 million in FY15. Bajaj Auto, similarly, had reduced the same from $1,318 million in FY15 to $1,201 million in FY16.
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Several firms had altered their hedging strategies in order to benefit from a weaker rupee in FY17.
Cadilla Healthcare, for instance, had un-hedged USD receivables and equivalents of $218 million as of FY16 as compared to just $137 million in FY15. Moreover, as compared to $219 million of payables in FY15, its un-hedged USD payables had decaresed to just $181 million in FY16.
Oracle Financial Services Software (OFSS), similarly, had just $64 million worth of short USD forward contracts at the end of FY16 as compared to over $122 million in FY15.