By IANS
Bangalore : The surging Indian rupee impacted the operating margins of IT bellwether Infosys Technologies by seven percent in the first quarter of the current fiscal 2007-08, the company said Wednesday.
"An appreciating rupee had a 3.5 percent direct fallout on our margins, while a 13-15 percent increase in offshore wages and five-six percent hike in onsite compensation had an impact of 2.7 percent. Higher visa costs contributed another one percent to the overall operational impact," Infosys chief financial officer (CFO) V. Balakrishnan told IANS here Wednesday.
The company, however, was able to neutralise the negative impact of a strong rupee and increasing compensation and visa costs by hedging against the US dollar (1.5 percent), increasing the utilization rate (three percent) and securing better pricing (one percent) to the extent of four percent. As a result, the impact is three percent on the operating margin.
For the second quarter (July-Sept), the company has hedged $925 million in the forex market to take forward cover at the conversion rate of Rs.40.58 per one US dollar.
"We will increase the forward cover if required by hedging more (dollars). The rupee had also appreciated against euro by 4.9 percent, pound by 5.5 percent and other currencies during the quarter (Q1) under review," Balakrishnan asserted.
For the company, the rupee has appreciated by June-end to Rs 40.58 for one US dollar from Rs 43.10 by March-end, an increase of Rs 2.52 or 6.2 percent in just three months.
"Our hunch is the rupee could appreciate further in the long term due to various factors though it is expected to move in a narrow band in the short term. All currencies are going to be volatile.
Rising crude oil prices, huge capital inflows, especially through ECBs (external commercial borrowings) and uncertainties in the global economy during the fiscal will have a cascading effect on the rupee," Balakrishnan pointed out.
Reflecting the impact of an appreciating rupee, the company's consolidated revenue for the first quarter is Rs.37.73 billion, lower than the guidance of Rs.39.13 billion under the Indian GAAP. The year-on-year (YoY) growth is, however, 25 percent.
Net profit grew by 35 percent YoY to Rs.10.79 billion from Rs.8 billion a year ago under the Indian GAAP. The earning per share (EPS) is within the guidance range at Rs.18, registering YoY growth of 32 percent.
The net profit, however, includes a reversal of tax provisions of Rs.510 million from the company's overseas operations.
Under the US GAAP, the net income in the first quarter shot up to $263 million from $174 million in the same quarter of the last fiscal, registering a whopping 51 percent YoY growth.
Similarly, consolidated revenue for Q1 is $928 million as against $660 million a year ago, an increase of 41 percent YoY.
In a departure from its tradition of revising the yearly guidance, sometimes even on quarterly basis, the company lowered the revenue guidance for this fiscal (2007-08) under the Indian GAAP to Rs.162-164 billion from Rs.170-173 billion projected in April.
On an annualised basis, the YoY growth has been revised downwards by six percent to 16-18 percent from 22-24 percent projected earlier.