IT SMEs in Gujarat dabble in hedging of receivables

While a rising rupee may have been troubling exporters lately, the last one year has seen an increase in number of small and medium enterprises (SMEs) in Gujarat in IT sector opting for hedging of receivables. According to industry players, while so far IT SMEs in Gujarat were oblivious to hedging, the units are are now working hard on improving their finances and foreign exchange remittances. So much so that at least 3-4 IT SMEs have begun hedging receivables since past one year.

"We had been serving clients in countries like the US, the UK, Australia, New Zealand, Hong Kong, Dubai and Macau but till last year we were unaware about the benefits of hedging. However, as we began exploring ways to improve on foreign exchange remittances, we began to follow the big IT firms and started hedging. Resultantly, in last one year we have been able to evade losses to an extent of 12-15 per cent," says Kshitij Patel, partner, Manubhai and Co., a knowledge process outsourcing (KPO).

Similarly, HiTech Outsourcing Services has also covered 70 per cent of its outsourcing contracts under hedging. Apart from KPO services, the company also handles engineering design services (EDS) work in different domains like architectural structure, mechanical, plumbing and electrical (MPE), among other things.

"Unlike the big IT companies, SMEs usually lag behind when it comes to risk taking and focus more on steady growth, taking in losses from currency fluctuations as they come. However, in the recent times, even the small and medium units have begun stressing on covering their finances looking at the rupee volatility," says Pranit Bhanthia, chief executive officer of HiTech Outsourcing Services.

While Manubhai and Co. which provides KPO services in accounting and law verticals, has 90 per cent of its business coming from overseas markets, the company had hedged only 40 per cent in last year to begin with.

However, Kaushal Mehta, chairman and managing director, Motif India Infotech Pvt. Ltd., offers a word of caution. "The big IT companies have ventured into hedging and have also burnt their fingers. The recent sudden appreciation in rupee to an extent of 12-15 per cent highlights the unpredictability of currency fluctuations. By hedging, IT SMEs may be able to safeguard some amount of their receivables. But the extent of loss may also turn out to be huge, so why dabble in something that is not in one's control?" Mehta asks.