Strength in dollar is likely to result in cross-currency headwinds, which may in turn impact reported dollar revenues of Indian IT companies. However, the headwinds are unlikely to impact constant currency growth.
Currencies such as the Great Britain Pound (GBP), euro and Australian dollar (AUD) have depreciated 5-7 percent in the December quarter so far. IT majors have a 30-35 percent exposure to GBP, euro and AUD.
Rostow Ravanan, ED and CFO at Mindtree says currencies moving all over the chart has become the new normal. He believes there may be a 100-150 basis points impact on dollar revenue due to the cross-currency headwinds. However, it may benefit on the EBITDA front, he adds. He expects constant currency operational performance to be stable.
Going ahead, he believes the fourth quarter will be better than Q3.
Below is the verbatim transcript of Rostow Ravanan's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Anuj: This last quarter has been quite unique. You have dollar gaining strength against lot of currencies specially pound and couple of other currencies like yen but rupee has been resilient. So, if you could tell us what would be the net impact?
A: We have got used to new normal where currencies typically move all over the chart and it is difficult to predict or make any sensible assumptions even on future movements. The tough thing about giving any comments on currency in the middle of the quarter is that it still has few more days left and god only knows which way it will go from here.
However, broadly speaking at least for Mindtree, we think there will probably be some amount of benefits to our rupee P&L because of the way the rupee held up against the dollar. There could be an impact maybe about 100-150 bps of cross currency on revenues. So that’s the way we see as of today but this is a huge pinch of salt because you still have about 20 days left to go and it is very difficult to predict which way the currency will move in the remaining period for this quarter.
Anuj: If I heard you right – dollar revenue growth could be impacted by 100-150 bps?
A: That’s right but on EBITDA basis there could be some benefit because the rupee is reasonably stable against the dollar.
Ekta: To flesh it out more with regards to Q3 – the December quarter is expected to be a seasonally weak quarter. So, as the quarter has progressed you have changed your stance from what it was at the end of Q2 based on the currency depreciation that you have seen?
A: We always try to keep the currency out of the commentary we give to the investment community because that is largely outside our control. Therefore, on an operational basis the quarter is panning out exactly like how we foresaw at the end of Q2. There will be a small growth in this quarter on an operational basis. If currency comes to either benefit or play spoilsport – that we will only know at the end of the quarter.
Anuj: This quarter is seasonally weak; there are lower billing days as well so let’s talk about what is happening going forward. How do you see client budget shaping up in next financial year if you have got any early inclination of that?
A: Most early indications are positive but it’s only a small number of clients at this point of time from whom we have some indication but to the extent that we have some indications as of today; the comments have been positive. People have few big priorities that they want to take up next year especially around digital and initiatives around their digital marketing and areas like that. So that seems to be a big priority for clients but overall we expect next year to also be a good year for Mindtree.
Ekta: Focusing a bit more short-term – in Q4 what would your outlook be. Do you expect a significant ramp up as compared to Q3 and Q4 or has that changed on fundamental basis as well?
A: Absolutely not. On fundamental basis things are the same if not maybe marginally slightly better. At the beginning of the year we said that Mindtree’s growth this year will be higher than the industry average and we are still tracking to that.
However, Q3 gets impacted due to lower billing days, clients having golden week or shutoffs etc. So that will reverse itself in Q4. So Q4 will be a better quarter than Q3 just automatically but other than that no macro news that worries us at this point of time.
Ekta: Any concerns about a possible slowdown in Europe?
A: Not at this moment. I do not think there is a major worry from any of our large customers in Europe but Europe also is presenting a diverse picture. A few countries are doing reasonably well; few countries are still under stress. So depending on where clients are headquartered, sentiments get affected accordingly. It is difficult to paint one broad-brush picture for Europe. However, the US is a lot rosier than the picture in Europe at this point of time.
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