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If the depreciated rupee remains at the current levels, it will make India-based IT service companies more competitive, said a report.
It will also increase their chances of winning new contracts and contract renewals especially in the current situation, when contract periods have shortened, said the India Rating and Research report.
The research report said that the US dollar appreciation will ease the expected pressure on EBITDA margins due to wage inflation for companies with a higher proportion of (India-based) offshore revenue.
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All Ind-Ra rated IT companies fall under this category and are thus well placed to benefit from this situation.
India-Rating expects revenue growth of select IT companies to exceed 10% y-o-y in H213 on a 6% -7% rupee deterioration in Q213. Revenue of these companies grew below 8% y-o-y in the last four quarters. The weak rupee will help revenue growth, as the effect of translation increases the ability of IT companies to price better than global rivals.
While the current forex rate trend is positive for the IT sector, managing forex risk will remain a key credit factor, especially if there is continued rate volatility, said the report.
The agency expects the outlook for this sector to remain stable in the medium term. Key event risks that could have a selective negative impact on ratings of IT companies include large dividend pay-outs or share buy-backs, or debt-funded acquisitions, which either drain liquidity or increase financial leverage.
Any materially adverse regulatory development significantly impacting the profitability of on an individual company will affect the sector’s outlook, said the report.
