New Delhi: Indian economists are going gaga over the Indian currency appreciation coming close to 9 per cent against US dollar over the past three-months. But ask the IT biggies and they tell you it’s the reason why they are resorting to cutting costs and increase hedging.
The tech titans have been working towards improving revenues per employee and the results are beginning to show. Productivity has improved over the last quarter helping companies like Infosys and TCS negate the hike in salaries.
Azim Premji, the man behind Wipro, said, "On the operational front, we saw improved utilisation by 4 per cent, which helped us partially mitigate the impact of rupee appreciation and additional sales and marketing."
Several IT and BPO firms in Bangalore have decided that their employees will have to work on Saturdays too in order to counter the negative impact of the appreciating rupee.
While IT firms are toying with the idea of working on Saturdays, those working in the business process outsourcing sector may have to put in an hour extra everyday at work.
The BPO firms work all seven days of the week. On an average, BPO employees put in 40 hours every week. However, now with revised working hours, an employee would have to put in 50 hours a week.
According to TV Mohandas Pai, Director-HR, Infosys, "We are right now working at about 75 per cent, last quarter was 73 per cent and if we go up to 77-78 per cent, you must understand that offshore the salary costs are already being pegged. So the operating model now has tremendous amount of flexibility to weather a sudden storm like a sharp appreciation in the rupee. So the fact that we have headroom in utilisation is in our favour."
The rising rupee has played a villain this quarter for most tech companies. While profit margins have come under pressure, the appreciating rupee has pushed tech companies to improve productivity. This is the sum up of the performance of the Big 4—Infosys, Satyam, Wipro and Tata Consultancy Services—who registered a fall in their earning guidance as compared with the previous quarter.
A 6.6 per cent jump in the rupee has dampened the performance of the tech industry. The hit varies from a 350 basis point knock for Infosys to a 135 basis point hit for Wipro. Even as the industry grapples with hedging strategies, tech CEOs realise there is more to life than forex gains or losses.
While TCS is taking a one-year view, Infy and Satyam are hedging (a strategy used to offset investment risk) almost 50 per cent of their dollar revenues.
"While we expect that we should be able to do reasonably alright even when the rupee appreciates, we are also prepared for any depreciation that takes place,” TCS CFO S Mahalingam was quoted by moneycontrol.com.
“The current approach is that we should be able to manage at around Rs 40,” he added.
While companies may differ on their hedging strategies, they unanimously agree on the need to enhance operational efficiencies and strive for higher billing rates.
This headroom and a robust demand environment has given companies like Satyam and Infosys the confidence to up their annual guidance in dollar terms. But they have had to lower their guidance in rupee terms. While it may not have been their best quarter, tech companies have on balance, managed to meet street expectations.
With excerpts from a moneycontrol.com report
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