The Hindu Business Line : ‘Volatile rupee calls for agile hedging’

Oct. 24 In these volatile times of foreign exchange fluctuations, Indian companies say they have to be flexible in hedging their transactions. Business Line spoke to a cross-section of chief financial officers to understand their strategies:

Mr S. Mahalingam

Mr S. Mahalingam, Chief Financial Officer and Executive Director, Tata Consultancy Services: Thankfully, the volatility is only in one direction at the moment; that is, the dollar gaining strength. The expectation now seems to be that the dollar will keep appreciating against all currencies and that has to be consciously factored into our hedge bookings. Even though the dollar has been strengthening against the Euro and Pound, cross currency hedging is something that we proactively look at.

Mr Saumen Chakraborty, CFO, Dr Reddy’s Labs: The forex fluctuations are increasingly becoming a concern.

Mr Saumen Chakraborty

At Dr Reddy’s we handle the loss (if any) in the forex by judicious hedging against the US dollar. As of now over 75 per cent of our revenue is not hedged. The major issue now is devaluation of rupee which might have a positive impact.

Mr V. Balakrishnan, CFO, Infosys: There is volatility everywhere. On a net-net basis, it would have a positive impact but could be offset by the cross-currency movementsFor every one percentage point change there is a 40 basis point impact our margins."

Mr Suresh Senapaty, CFO, Wipro: It is beneficial to exporters in the medium- to long-term. There is no change in our risk management strategy. We are flexible to adopt to all changes and have hedged our receivables."

Mr P.S. Jayaraman, Managing Director, Chemplast Sanmar Ltd: Chemplast’s exposure to foreign exchange is mainly in terms of payments for import of raw materials – intermediate chemicals for making PVC. Typically, the exposure is about $ 50 million a year. Any forex exposure is invariably covered with a forward contract.

We don’t mind the additional cost of the premium. We have seen that over a period of time the gains from not taking a cover are far lower than what you would lose without a cover.

Mr Ajay Seth, CFO, Maruti Suzuki India: This year our imports are significant. So we will feel the pain even though we had hedged at a good level when the Euro was strengthening.

Mr Ajay Seth

However,we have kept the rupee-dollar window open. With our exports likely to grow next year, we will become a net exporter. This should reducethe impact of currency fluctuation.

Mr Kamal Baheti, Director (Finance) McLeod Russel: For McLeod Russel, the country’s largest producer and a major exporter of tea, managing in the present situation of foreign exchange fluctuations is not much of a problem.

First, we do not have imports, only exports. We export about 26/27 million kg of tea annually, valued at around Rs 300 crore. We book foreign exchange on the day we conclude our sale contracts. We generally do not take any open position, nor do we speculate.

Mr V. Srinivas

Mr V. Srinivas, CFO, Satyam Computer Services: We don’t take a call on currencies when it comes to hedging. We have decided to stick to our 50:50 hedging. We gain or lose 50 per cent in either scenario.

The fact that our losses in three years on account of hedging are less than $1 million shows that our stand is vindicated.

In fact we made a gain in the second quarter, when some other companies reported losses up to Rs 50-60 crore. Making profits is not the objective of our hedging policy, though.

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