The Hindu Business Line : As rupee softens, Wipro may face `translation' losses

A SOFTENING rupee against the US dollar could force Wipro Ltd book some ``translation losses'' tracking the $900-million forward cover it took to insulate itself against the then-hardening rupee, some analysts said.

However, the company said it was yet to revise its decision on hedging and the current southward dip of the rupee against the dollar could be a temporary blip following the election jitters and the dollar's global gains.

The rupee shed close to one per cent on Friday from its previous close against the dollar. This was the lowest in nearly four-and-half months and is seen to be the biggest such drop in six years and the fifth weekly loss. The currency fall was aided by a bear rage in the stock market where the Sensex shed over six per cent following heavy selling from foreign institutional investors.

``Though there is a short-term concern over Wipro's hedging strategy in the wake of the soft rupee, we think, in the long run, it will even out. It's not an overhang now for the full year picture, though we cannot assess the rupee's swing going forward,'' a software analyst with a top local brokerage said.

``We think that Wipro bought the forwards in the band Rs 44.50-Rs 44.70... but the covers could be structured to minimise shocks of such short-term soft rupee,'' another analyst with a foreign brokerage said.

If the company cancels some of its short-term contracts, it could bring down the ``component of other income in its first quarter balance sheet due to translation loss,'' analysts said.

Wipro has hedged $900 million of its receivables as close to 70 per cent of its revenues is billed in dollars, following steady appreciation of the rupee against the dollar in the earlier months of this year. The rupee had gained 5.2 per cent against the dollar last year aided by foreign investors who bought $6.6 billion worth of local shares.

The company said that such ``proactive hedging'' would keep it insulated against further sharp rupee-dollar fluctuations in the first quarter of the current fiscal. Traditionally, for every one per cent gain of rupee against the dollar, Wipro's operating margin shrinks by half a per cent.