The Hindu Business Line : ‘We’re seriously looking at cross currency hedging’

Bangalore, Oct. 10 A weak rupee helped Infosys beat its own estimates and analysts’ forecast to post a healthy, double-digit sequential growth in net profit and revenues for the September quarter. Infosys is cautious about the outlook for the rest of the year while stating that it did not have any material impact from its banking and financial services customers exposed to the credit turmoil in the US. Business Line spoke to Mr V. Balakrishnan, Chief Financial Officer, Infosys Technologies, just after the earnings announcement. Excerpts.

What is the impact due to the currency volatility?

We got $28 million benefit in operating income because of currency depreciation. There was a net loss of $28 million in non-operating income. We had $48 million of hedging loss compensated by $20 million of translation benefit. Net was $28 million loss. The net income level is zero.

Considering the cross currency impact (i.e. movement of other currencies against the dollar and each other), will you revise your hedging strategy?

We are seriously looking at cross currency hedging. We have done some hedging and probably we may increase it. There is a consensus that most of the European currency and Australian dollar could depreciate further against the dollar. Probably, we may increase our hedges there. On dollar-rupee, we will continue with the current strategy of hedging for next two quarters. Currency is depreciating everywhere. We have a total of $932 million in hedges marked-to-market at quarter-ending rate of Rs 46.97 as against last quarter hedges of $811 million. Of the $932 million, we have close to $100 million in cross currency hedges.

Your days sales outstanding (DSOs) are down to 60 days. Is there any special initiative on the collections front?

Yes, there is an emphasis and the management monitors the DSO numbers on a daily basis. About 82 per cent of our receivables are of less than 30 days. We have clear targets to entire sales staff to make sure that account receivables are good. It is a top of the call for the management everyday. However, China is a challenge where clients don’t pay up on time. As a result the DSO varies between 200-220 days. Since China is a small part of our portfolio, there is no material impact.

Do you see a break-even for consulting in the near term as the losses are down to a million dollars?

We had said consulting business could break even this year. It will happen closer towards the end of the year.

Revenue from your largest client British Telecom is down to 7.6 per cent. Is it because of termination of certain projects?

I don’t want to comment on specific clients. That client has almost stabilised and we have seen revenues to be similar to what we have seen in the first quarter. There is no movement in that client.

Manufacturing now accounts for a fifth of your revenue. What are the prospects?

Manufacturing is strong. It is one industry which has not focused on technology. This is because all along they have been getting the cost leverage from countries like China. Today, China has peaked out. It is the first time, I think, China has increased prices. If manufacturers have to get better value for their customers, they have to leverage on technology. They were not the biggest spenders on technology but have now started spending.

Could you explain the strategy of keeping your hiring plans intact, while lowering the revenue forecast?

We have kept the revenues at the same level because we are cautious about the environment. We are not changing the hiring plans. We will hire 25,000 people on gross basis for the year. It is quite possible that utilisation can come down, but we have enough cushions in the margin to absorb that and keep the model ready.

For, at any point in time we should not miss out on the flexibility in the model. We should not be caught by surprise if there is growth tomorrow. We can afford the cost (of those hires). If there is an opportunity for growth, we will be better prepared for growth.

Systems integration revenues are up a bit. Will you step up focus on SI kind of work going forward?

There are a lot of opportunities in systems integration and BPO. If there are opportunities, we will increase our focus. If we can access a client through a service, we will definitely do it.

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