The Hindu Business Line : Realisation to improve for IT companies

The depreciation of the rupee to Rs 44.5 levels, by 13.2 per cent since January this year, against the dollar might improve realisations for Indian IT companies.

The current level of the rupee versus the dollar provides comfort on the ability of companies such as Infosys and Satyam to meet or exceed their earnings/revenue guidance for the full year.

Infosys and Satyam had pegged their earnings guidance to an exchange rate of Rs 43.04 and Rs 42.88 to a dollar respectively.

With the rupee depreciating well below this level to Rs 44.5 to a dollar, though the total year’s average rate may be lower, dollar-denominated revenues would definitely come in at better realisations.

Pricing environment

These companies have a fairly high proportion of dollar denominated revenues as they derive over 50 per cent of their overall revenues from clients in North America.

Last year, when the rupee appreciated sharply against the dollar, IT companies were able to get a 3-4 per cent pricing increase.

Frontline IT companies such as TCS, Infosys and Satyam, are now grappling with a flat- to-declining pricing environment from clients.

In light of this, the depreciation of the rupee to current levels may provide relief to these and most IT companies. These companies also hedge 30-40 per cent of their full-year revenues.

But for mid-tier IT companies that have hedged a larger part of their revenues, the gains-to-realisations from any rupee depreciation beyond the levels at which the hedge is locked in may be capped.

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