The sharp appreciation in the rupee after the government unleashed its reforms and fiscal consolidation plans may not impact the earnings of IT companies for the September quarter, say analysts. However, the profit margins may come under pressure from the next quarter if the rupee sustains its rise from a five-month high of 51.75 touched on Thursday, they say.
?Rupee should not be a swing factor in the September quarter earnings, but could start weighing on margins Q3 (December quarter) onwards if the recent INR trend sustains,? said Citi in a preview report on the Indian IT companies ahead of the result season. If the rupee continues to rise, companies may see a ?compounded impact? on their export-driven revenues.
Experts say it would impact the rupee-term revenue growth of companies and may even lead to earnings per share (EPS) downgrades as analysts factor in this development along with a sliding dollar-term revenue growth.
It is estimated that the dollar-term revenue growth of the top four IT companies ? TCS, Infosys, Wipro and HCL Tech ? has been coming off from about 24% in 2010-11 to 19% in fiscal 2012. For the current fiscal, it is estimated to be 10-12%.
?If the dollar-term revenue growth continues to slide, while the rupee continues to gain, the EPS estimates for the next fiscal may be lowered,? says an analyst.
In a recent note, UBS estimated that for every 1% move in the currency, the earnings of top four IT companies could be impacted by 1-2%. The brokerage’s current earnings estimate for these companies factors in an exchange rate of 55.5-53.5 for fiscal 2013 and 2014.
However, it said the forecast could be cut by 2-5% for FY13 if the rupee appreciates to 53 in the second half of the fiscal, and by 3-5% for FY14, if it stays in the range of 50-51 against the US dollar. ?We believe that the demand is yet to bottom out and that the first half of 2012 is the earliest we can expect to see a revival… If the currency continues to appreciate, the sector is likely to de-rate further,? said UBS.
For the quarter ended September 2012, the average value of rupee stood at 55.2, up 2% from the June quarter and 22% higher than the same quarter last year. Since the last week of June, when it touched its all-time low of 57.16, the rupee has appreciated 10.5%; about two-third of the gain was seen in the second half of September.
The CNX IT index has underperformed the market by a huge extent during the period; while the 50-share benchmark Nifty gained 12.6%, the 20-share CNX IT index yielded just about 6%.
