Re fall to boost IT margins by up to 4%

CURRENCY BETS PAY

Cos' Profit Depends On Extent Of Hedging 

Bangalore: Indian IT firms may make windfall gains from the rupee depreciation in the June quarter, with profit margins likely to rise between 2 and 4 percentage points, depending on the extent of their hedging. 
    Sid Pai, partner in research and consulting firm Information Services Group, said, "At this point, it could be difficult to estimate the quantum of rupee gains for each of the companies as its closely linked to the size of hedges. We get a sense that for Q1 of 2012-13, the rupee factor may cause a margin uplift of 300 to 400 basis points.'' 
    Jagannadham Thunuguntla, head of research at SMC Global Securities, also said it would be tough to compute the net effect of the rupee on margins without having a proper view of the hedge scene. "But the companies with high-hedges (in the Rs 40 levels) may report a lower margin impact at 1.5 percentage points," he said. 
    Given the unexpectedly sharp drop in the rupee value in the quarter, companies that had less money under hedges will likely reap better returns. Infosys had only $800 million under hedges, against TCS's $3 billion and Cognizant's $3.7 billion. Some analysts expect Infosys to gain the most out of the rupee fall, with a 3 to 3.5 percentage points improvement in its June quarter margins. 
    The rupee depreciated by about 20% in the June quarter. The currency stood at 45 to the dollar between April and June last year, and between 52 and 56 during April-June this year. In the quarter ended March, TCS had the highest net profit margin, at 26.15%, followed by Infosys at 25.66% and Wipro at 14.39%. One brokerage house has speculated that Infosys may be tempted to offer a salary increment on account of the rupee windfall. Some others say it could offer a bonus to its employees. Infosys will be the first of the big Indian IT companies to announce the June quarter results, on July 12.