Forex losses affect HCL Technologies

Written by Kirtika Suneja | New Delhi | Updated: Jan 28 2012, 08:12am hrs
The country's fourth largest information technology (IT) company HCL Technologies may have been reporting better than expected topline and bottomline growth but one factor may rumple up its performance foreign exchange losses.

The company has been constantly posting forex losses for almost two years and the recently closed second quarter ended December 31, 2011 also saw R75.8 crore of forex losses.

We always hedge because we don't know where the market will go. We will always have a hedging loss because we follow a middle of the road policy when it comes to hedges, said Vineet Nayar, vice-chairman & CEO, HCL Technologies. Analysts attribute the companys continuous forex losses to Rupee depreciation and the long-term foreign currency hedge positions it used to take till a few years back.

"HCL Tech had taken huge hedges till three years ago, which adversely affected its foreign exchange position and after that came to an end, the Rupee began depreciating, said Dipen Shah, head, fundamental research, Kotak Securities.

Brokerage firm Angel Broking said HCL Techs net profit for the second quarter ended December 31, 2011, of R573 crore was negatively affected by R76 crore of forex loss.

"Cross-currency movement impacted the companys Dollar revenue by 1.7% Q-O-Q. Cross-currency movement severely impacted infrastructure management services (IMS) revenue by 2.2%. Management indicated that this is basically due to softness in India business; globally IMS is doing well. The company has to stop few system integration projects in India due to sharp Rupee depreciation, which made these projects unviable for HCL Tech, explained analysts at Angel Broking. HCL Tech had hedged a total of $1.2 billion under its layered hedging policy. However, company spokesperson explained that forex fluctuations did not have an adverse impact on HCL.

"Our layered hedging strategy has ensured that we are able to minimise impact of currency volatility. We follow a layered hedging policy and we hedge for a limited time, so profits or losses from currency fluctuations average out. Following that policy, we dont take positions based on the exchange rate in the market. Our hedge positions remains within the range of 20- 40% of net inflows, said the spokesperson.