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Hedging against dollar costs IT firms Rs 12 cr

Vinay Umarji/Mumbai/ Ahmedabad 02 Jun 12 | 12:25 AM

While the rupee depreciation has been ringing cash registers of IT and software exporting companies in Gujarat, the industry has in all lost around Rs 10-12 crore in profits in last one month due to hedging. Having booked export orders at the Rs 47-48 against US dollar level for the month of May, IT firms in the state lost on the opportunity to earn better margins at the current Rs 56 against US dollar level.

For instance, global network security provider Elitecore Technologies which had booked its exports of Rs 2.55 crore for the month of May at Rs 47 saw itself losing close to Rs 5 lakhs. "Since we hedge only 35 per cent of our exports, we didn't have to bear too much of a loss in profits for the month of May. However, we don't see rupee depreciation stopping at the Rs 56 level against US dollar and hope to be prepared for future," said Rakesh Mistry, CFO of Elitecore.

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Another case is that of Ahmedabad-based IT company, Sai InfoSystem Ltd. (SIS), which also bore the brunt of falling rupee in last one month. One of the largest IT companies in Gujarat, the Rs 2,000-crore SIS lost over Rs two crore in last one month due to rupee depreciation wherein the company had hedged rupee against dollar at Rs 46 for its exports in May.

"Nobody had expected rupee to depreciate to this level. Moreover, in recent times, IT companies in Gujarat have become pretty competitive in terms of software exports at par with other major companies across the country. However, since exports form only five per cent, we lost about Rs two crore last month due to rupee depreciation," said Sunil Kakkad, CMD, SIS. Every month, the company does exports of around $3 million (Rs 168 crore approx.)

While the likes of Gateway TechnoLabs and eInfochips also saw loss in profits, the companies refused to divulge financial details. However, experts estimate that in all the industry in Gujarat might have lost about Rs 10-12 crore in profits which they could have earned if the firms hadn't hedged export orders.

According to Rajan Vasa, CMD, Contech BPO Services Ltd. and president of The Indus Entrepreneur (TiE) Ahmedabad chapter, several IT companies which had begun hedging since 2008 economic crisis lost it out this time in the dollar rally. "Several IT firms in Gujarat, especially the larger ones, had been hedging software export orders post the global meltdown in 2008. However, none of them had anticipated such a sudden depreciation in rupee against dollar. In all, IT companies in Gujarat may have lost to the tune of about Rs 10-12 crore in last one month," said Vasa.

The loss is also higher than expected due to IT firms in the state witnessing improved exports this year. For instance, according to Ajay Sharma, director of Software Technology Parks of India (STPI), software exports from Gujarat has risen to Rs 1,500 crore this year, up by 25 per cent since last year.

However, among them, it is only the small and medium enterprises (SMEs) that have been able to cash in on the recent rupee plunge. It was the small and medium enterprises (SMEs) in the state that were able to salvage loss in profits. "Unlike the larger IT companies, we don't have a finance team to predict or budget a dollar cover. This, in a way, has helped to make the most of the rupee appreciation," said Kaushal Mehta, co-founder and chairman of Motif Inc., a BPO company.

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