Due to the sudden depreciation in the rupee, Farid Kazani, group chief financial officer and director finance of Mastek said that they will be looking at opportunities to book intermediate exposure at current levels. However, they will not change their hedging policy.
“We cover 50% of our net exposures over the next 12 months. If the depreciation is approximately 1%, it gives us an impact of roughly around 0.25% on our margins if we are totally uncovered” he said.
Below is an edited transcript of his interview with Ekta Batra and Reema Tendulkar. Also watch the accompanying video.
Q: Could you tell us the break up of your revenues and the kind of exposure that you will get from European zone and the US? Also, given the rupee depreciation, what is the impact that we could see in the coming quarter?
A: For Mastek, the exposure from the UK is roughly around 50% and around 43% from the US. Yes, the depreciation of the rupee is a positive impact to us. In terms of our hedging policies, we cover 50% of our net exposures over the next 12 months. So it gives us an opportune moment to book some of the intermediate exposures at the current levels. In terms of the net impact, if the depreciation is approximately 1%, it gives us an impact of roughly around 0.25% on our margins if we are totally uncovered.
Q: Since you still have an un-hedged portion, will you be using this current rate to hedge a little more? What’s the expectation from rupee and are you planning to alter your hedging policy now?
A: No, we do not alter our hedging policies based on intermediate volatile moments in the currency. We have got a broad frame policy and we will continue to hedge 50% on net exposures. For the near-term, wherever we have an opportune in open exposure, we will book that at the current levels, so it helps us a bit.
Q: Give us a sense of how business is panning out? Considering that you have such a strong Europe exposure, what are you expecting in terms of possible budget cuts, clients etc?
A: In the current state, the pipeline moment is looking much better than it was six months back. In the UK, we have seen huge constraints on releasing government IT budgets in the past. We are seeing some opening up, but it’s too early to conjecture. But there is definitely an improvement in the pipeline and we do believe it will help grow in the coming quarters.
Q: Any exposure that you have to banks at all in Europe?
A: No, we do not have any major exposure to banks in Europe.
Q: Is it possible that the company might see another loss for this fiscal year, because that’s the fear in the market?
A: We do not give forward looking guidance and our expectation is that we will improve our both topline and bottomline going forward. Hopefully in the next few quarters we should come back to our profitable positions. But I have no statement to be given as far as loss for the year.
Q: Since your employee cost is so high compared to revenue, are you’ll planning to layoff people or try and tighten the budget with respect to employee cost?
A: No, we are not looking at laying off people because we definitely see signs of improving our topline. So there is some little recruitment that we are doing in the current quarter. As far as improving the cost structure, that’s an ongoing kind of activity that we are doing. So there is scope for us to improve the cost structure, both at the operations level and at the cost at a corporate function level.
Q: You are also planning to enter into the US market for insurance product business. Any success over there?
A: Yes, we are already there in the insurance market in North America. We are entrenched in the property casualty business, which is a non-life part. As far as the life insurance is concerned, we are doing pretty good work with one of our client’s Foresters and there is a good pipeline build up happening for further work with other clients in North America and Canada.
Mastek stock price
On November 27, 2015, Mastek closed at Rs 196.00, up Rs 2.40, or 1.24 percent. The 52-week high of the share was Rs 513.50 and the 52-week low was Rs 133.30.
The company's trailing 12-month (TTM) EPS was at Rs 20.37 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 9.62. The latest book value of the company is Rs 191.21 per share. At current value, the price-to-book value of the company is 1.03.
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