Tuesday 7 April 2015

Forex volatility to hit top IT companies' dollar revenue

Cross-currency headwinds, possible losses due to volatility in multiple currencies may impact earnings of information technology (IT) companies in the January-March quarter, which would result in a flat sequential dollar revenue growth. Various analysts forecasts show an impact of nearly 200-300 basis points (bps) (100 bps = 1%) on the sequential revenue growth of top-tier IT firms as well as margins.

IDFC's IT analyst Hitesh Shah projected in a preview note that the impact of depreciation of global currencies against the US dollar (USD) was at 200-250 bps on the sequential revenue growth of the top five IT players, viz., TCS, Infosys, Wipro, HCL Tech and Tech Mahindra.

"We expect sequential organic growth in USD revenues to be between (-)1% and (+)1% for the top five IT companies.This factors in a 200-250 bps cross-currency headwind," he said in the report. The report also considers modest volume growth, business investments and cross-currency headwinds as key margin dampeners this quarter.

Analysts add that though a major portion of revenues of IT companies are denominated in dollar, revenues are in multiple currencies including euro, pound, Australian dollar and Japanese yen. Almost 50-70% of the revenues of the top five IT companies are USD-denominated with average exposure to pound being 10-15%, euro 8-12% and Australian dollar 5-7%.

Ashish Chopra, VP (research) at Motilal Oswal Securities, has forecast an impact of 250-300 bps on the dollar revenue growth of IT companies and 50-100 bps hit on their margins this quarter, due to currency volatility . He added that the current quarter would be the third consecutive period to see depreciation of global currencies against the US dollar.

Shashi Bhusan, analyst at Prabhudas Lilladher, anticipates currency volatility to impact dollar revenues by an average 180-280 bps, while on the margin front he expects a 20-40 bps hit. "The impact on individual IT players would depend on the incremental revenue contribution from various currencies this quarter," added Bhusan.

In its business update, industry leader TCS anticipated a negative cross-currency impact of 200 bps on its dollar revenue in the January-March quarter.

While HCL Tech also communicated concerns of an adverse impact on its dollar revenues and profits: "Since the company's revenues are derived in multiple currencies and significant costs are incurred in INR (Indian rupee), the revenues and ebit (earnings before interest and tax) for the quarter to be reported in USD would have adverse impact of around 280 bps and 80 bps respectively."

No comments:

Post a Comment