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Forex losses to be covered by translation gains: Satyam

2008-05-15 21:08:24 Source : Bazaar/CNBC-TV18
(Interview Transcript)

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According to Srinivas Vadlamani, CFO of Satyam, it is a wait and watch mode on hedging policy and is slowing down the pace. The forex losses from hedges will be compensated by translation gains, he said.

There has been an improvement of 30-32 bps in the margins from the 1% rupee depreciation.

Excerpts from CNBC-TV18�s exclusive interview with Srinivas Vadlamani:

Q: Looking at the rupee at the current levels, what does it mean materially for your margins this quarter around?

A: This is indeed good news for us. The rupee depreciated by almost 5-6% in the last two weeks, which is definitely good news for IT and also for any exporter. Every 1% appreciation nearly means a 30-35 basis point improvement at the operating margin level. In the near-term, we are looking at the rupee continuing to depreciate. But in the longer-term, it may appreciate again. People are certainly not talking about Rs 39-39.50 levels which was a situation a month back or so. Even if it appreciates, people say that it may come down close to Rs 41, so overall it is good news.

Q: What kind of changes you think you might have to do in terms of margin outlook?

A: We have to wait for some more time to see whether it sustains at these levels. July would be the right time to talk when we come to give guidance for the next quarter. Otherwise at this point in time, it is too early to change the guidance or talk about margins because we need to see how long this will prevail.

Q: Do you think most large scale IT companies will have to re-look at the kind of hedged positions they have? They worked with a ball park of Rs 40 or at best Rs 41.5, will that have to be re-worked as well?

A: Yes. At this point in time, most of us are in a wait and watch mode. We are not as active as we used to be a month back. The depreciating rupee is good news to us. So, on the hedging side, we may slow down the pace a little bit. Whatever we loose on the hedging, or whatever hedges we already carried, will one way get more than compensated by translation gains. This we will get at the quarter end because of foreign currency assets that we hold. These two things may get evened out. Overall, it is a wait and watch time for all of us.

Q: How are you positioning yourself and what are your current forex positions? How are you looking at managing the rupee given its current falling?

A: We are not that active when it comes to hedging. We have a hedged around USD 750 million or so, and have a policy of hedging roughly around 50% of our expected dollar inflows for the next 12 months. We continue with that policy. It is a 50:50 game there, so we are evenly hedged. Whether the rupee appreciates or depreciates, the impact will be equal for us. This is a good policy to have and we continue to hold on to that. From that point of view, the USD 750 million of hedge positions, which we currently hold, one way represents that policy.

Q: The problem seems to be that no one has a clear sense of direction. From what you have seen so far, do you think FY09 is by and large going to be a period of rupee weakness?

A: That is the sense we get. We don�t have any in-house view on this. But going by what we hear and see, the overall trade deficit situation is worsening. Experts say that with crude prices having crossed USD 124 per barrel, the overall trade deficit is going to only increase, which means a depreciating rupee.

The rupee continues to weaken. They say it may touch around Rs 43 levels and may appreciate and touch around Rs 41-41.5, levels. If you are looking at a one-year horizon, it is good to assume that the rupee is going to appreciate. Looking at the overall economic environment and the way we are going YoY, the overall currency is going to strengthen. The rupee is going to depreciate in FY09, which is good for exporters.

Q: Will Satyam be revising its EPS targets?

A: Not at this point in time as we are in a wait and watch mode and will see how things pan out.

Q: A lot has happened overnight in the US, how have you read this HP-EDS combine? People are talking about consolidation in the industry. Perhaps prices will start getting drilled low and clients will start asking for better deals, what have you made of it?

A: It is too early to talk about anything happening in the Indian topography. In terms of consolidation in the Indian industry, it appears to be a good deal between HP and EDS. Both companies are having distinct focused areas. While HP is more of a hardware-oriented company, EDS is more service-oriented. So, from that point of view, that particular deal may make sense.

The kind of an impact it will have on the India Inc, especially Indian IT and offshore companies still needs to be seen. We also had similar kind of apprehensions as to what will happen to Indian off-shoring companies when IBM and Accenture came to India 3-4 years back. But we could wade through. At this point in time, while those companies and India Inc grow at similar rates, we are not getting negatively impacted by the advent of Accenture and IBMs of the world. Therefore, I am sure that the Indian offshoring companies will be able to sail through comfortably.