Among the select ones celebrating the rupee's free fall are tech companies and other exporters.
Midcap software services firm, Hexaware was up 1 percent at Rs 85.30 on the back of the rupee's weakening. This weakening, according to Atul Nishar, chairman of Hexaware, will help improve the company’s margins by 100 bps. Every one percent fall in the rupee, will mean a gain of atleast 35 bps in EBIT and EBIDTA, he says.
"If one adds this to the guidance of Hexaware which is already that we will improve the margin materially this quarter, if we add up the two we should have significant to robust improvement in margin in this quarter," Nishar told CNBC-TV18.
Below is the edited transcript of Nishar’s interview to CNBC-TV18.
Q: We have seen the rupee fall quite a bit. So on March 31 when you closed the quarter it was the level of 54.31/USD. From there, it has depreciated close to about 6 percent. What is the rough sensitivity for Hexaware in particular for every 1 percent fall in rupee? How does it benefit your margins and what could we expect in the coming quarter?
A: Every one percent fall in rupee would mean a gain in gross margin, EBIT and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) level of at least 35 bps.
If one looks at Q1, we take the average of closing rate on each of the three months. That was just under 54/USD in Q1. Q2 April was more or less the same, but May and now expected June would be much lower. So, this should result in atleast 100 bps improvement in margin only on account of currency.
If one adds this to the guidance of Hexaware which is already that we will improve the margin materially this quarter, if we add up the two we should have significant to robust improvement in margin in this quarter.
Q: Two things when you speak about the improvement - one, have you already hedged your currency at 54, so how much will you be able to make in terms of selling your earnings receivables at 56? Secondly, we are not the only one who know that the currency has depreciated. Your buyers also will know. So won't your customers demand that you reduce rates?
A: In the last seven to eight years, if one looks at the company or other software companies in the industry, there has been very little improvement in rate. The rates have been more or less same. If one looks at Hexaware, our average offshore rate has been more or less same, between USD 23-24/hour in that range, and the last being USD 23.37. While the rate is not going up, it is because of the rupee depreciation and the growth that we have been absorbing the wage increases over all these years.
Q: In the second quarter will this 100 bps reflect or would you have already sold your earnings?
A: Up to gross margin, EBIT and EBITDA level, it will improve quite significantly this quarter, but hedging loss or profit will appear just after that. If one looks at partial hedge impact or average over next two years, it comes to around 56. If it is lower than that, then there can be a small loss in terms of forex, but more than compensated by the gain in the improvement in margin and hedging is done 80 percent for the first year.
Q: Last time around you did not give an explicit guidance on calendar year 13. Now that two months have passed since we last spoke to you, do you have some clarity on what you would end this calendar year with in dollar revenues - double digit etc.?
A: We have guided in the beginning of the year. Firstly, one must recognize very few companies give any guidance at all. Hexaware is one of very few companies to give annual guidance, quarterly guidance as well as indicate broad margin on an annual basis, quarterly basis. So, we give more guidance than any other company.
We have in the beginning of the year guided for around 10 percent growth in the current year. We are working towards that. In the second half of the year, the revenue growth will be much better than the first half and we are confident of it because of our strong pipeline.