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| TCS takes $135 million of new currency hedges |
| Shivani Shinde / Mumbai Oct 20, 2009, 00:36 IST |
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Currency volatility is a concern for India’s largest information technology company, Tata Consultancy Services (TCS). So much so, that it has taken new hedging positions worth $135 million (around Rs 630 crore) for the quarter ending December 31.
TCS had a total hedging position of around $2 billion, that the company had taken in early 2008. These hedges will continue to cover the company’s receivables for the next seven to eight quarters.
For the December quarter, the company had old hedges worth $75 million, but due to currency volatility in the last quarter and during the past few weeks, the company has been compelled to take new hedges. For the quarter ending March 31, 2010, the hedged sum is $40 million.
“We are in a volatile situation. Earlier, it was the rupee that was appreciating or depreciating against all the other currencies. But now, all the other currencies like the pound sterling and dollar are depreciating or appreciating,” said S Mahalingam, Chief Financial Officer. Since the beginning of October, the rupee has appreciated by three per cent to the dollar. And, the British pound and the euro depreciated by 2.51 per cent and 2.48 per cent, respectively.
Mahalingam went on to elaborate that other than the old hedges, the company had not taken any new hedges for all of 2008-09, as the rupee was depreciating. “I have been emphasising that our focus is not on the losses in the account. But I am more worried about our pre-hedge and post-hedge rates. Post-hedge rate is critical because this is what I assure the business or insulate from currency fluctuation,” he added. The old hedges are at the rate of about Rs 40.50 and the new $135 million hedge is at the rate of Rs 47.
“I do not think $135 million is a huge cover. Besides, taking a cover against a fluctuating currency is the only option for Indian IT firms,” said an analyst tracking the company.
TCS registered a foreign exchange loss of Rs 113 crore for the quarter ended September 31, compared to a gain of Rs 84 crore in the preceding quarter. Despite this, it delivered a stellar performance in this quarter. Its revenue at Rs 7,436 crore was up 6.94 per cent during the quarter under review, compared to Rs 6,953 crore posted in the same quarter a year earlier. TCS net profit was also up 29.2 per cent to Rs 1,642 crore.
The company had a volume growth of five per cent this quarter. “Getting the same volume growth will be difficult but the next quarter will be a growth quarter,” said Mahalingam.
India’s largest IT company has also done well at conserving its cash. At the end of June 30, the company had a cash reserve of Rs 6,100 crore. At the end of September 30, the cash reserves were Rs 6,400 crore. “This despite the fact that we had two dividend payments — the final dividend of the previous year (2008-09) and quarterly dividend of first quarter — which was around Rs 1,000 crore, including dividend tax. But despite this, we have increased our cash by Rs 300 crore,” said Mahalingam. He attributes the growth to good collections and the ability to control expenses.
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