The Indian IT services industry, which is turning more confident about its growth prospects in the current fiscal, is also wary of any adverse impact on the forex front, especially the movement of rupee against the US dollar, which could upset their projections. The recent appreciation of the rupee against the dollar might become a cause of concern for the Indian IT industry in FY15 as any volatility will become burdensome for the companies when they are entering into a phase of making fresh investments in newer geographies and technologies.
Industry experts have raised a red flag after rupee recovered to 60.26 against the dollar, leaving a few creases on the exporters’ foreheads. The currency had plummeted drastically to 68.83 against the dollar in August 2013.
In the wake of the ensuing Q4 results and a positive growth forecast of 13-15% for FY15 by trade body Nassocom, brokerage firm Prabhudas Lilladher has a word of caution. “The clients are struggling with increasing expectation from IT wherein their IT vendors should not only contain costs of existing services being offered, but also help driving growth led by technology. The volatile movement in the currency makes deal budgeting a challenge,” the brokerage house said.
The direct impact of any adverse forex movement will be on their bottomlines. Prabhudas Lilladher has predicted a 3-5% drop in earnings of Indian IT companies in FY15, since a higher offshore presence would have a higher impact due to currency appreciation. Each percentage point appreciation in currency is likely to erode around 30-40 bps of Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins.
BNP Paribas in its report said, “We forecast 0-3% US dollar revenue growth for our large-cap coverage in the March quarter, similar to the 1.6-4.4% growth in the December quarter and reflecting continued weak seasonality. We expect the highest q-q revenue growth for Persistent Systems, HCL Tech, Mindtree and Wipro, and q-q declines for Infosys and MphasiS. Several companies may report hedging losses in other income given the USD/INR strengthened late in the quarter.”
The large multi-billion dollar Indian IT companies have already started feeling the heat of the swing in the forex market in terms of stock market movement. In March, Infosys shares depreciated close to 15%, TCS 7%, Wipro 8% and HCL technologies 11%.
The fourth quarter earnings season will begin with Infosys announcing the results on April 15, followed by TCS and Wipro. There