A large portion – around 30 percent – of Mindtree 's revenues comes from Europe and with the fall in the euro and experts anticipating a further weakening in the currency, the company may perhaps find itself in the eye of the storm.
But Rostow Ravanan, executive director and chief financial officer of Mindtree seems unperturbed by the developments on the cross-currency front. "I have decided never to make any forward predictions on the forex front," he says.
He says around 50 percent of net inflows of the company are hedged. For Mindtree, the geographical midst is different, he says. Even outside the US, a lot of the business is done in dollars, he adds. He says a percent change in the rupee-dollar rate has a 30-40 basis points impact.
In the next few quarters, he sees maximum opportunities coming from the US. Sounding extremely confident on the days to come, he says customer confidence is at its highest in the past 15 months.
He expects second quarter margins to be lower than the first quarter due to wages and visa cost.
Below is the verbatim transcript of Rostow Ravanan's interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.
Reema: We have seen a near 7 percent decline in the euro versus the dollar just in the last four months. Also we have the Tata Consultancy Services (TCS) conference call yesterday where they indicated that they could see an 80 bps impact on the back of cross currency in the coming quarter that is in Q2. Can you tell us for Mindtree, what you anticipate will be the cross currency headwind in the quarter?
A: On currency, I have decided never to make any forward predictions. Let us wait till the end of the quarter. As you yourself outlined, there have been sharp moves both ways in the last few months. So let us wait till the end of the quarter to see what the impact of currency will turn out to be.
Our geographical mix is slightly different. Even within some of our customers outside of the US, we have dollar denominated contracts, which is why it makes it a little bit more difficult to predict how the quarter will turn out to be on cross currency impact.
Sumaira: Without asking you to make any forecast, as of now if you could tell us how much of your euro-revenues as well as your dollar-revenues are hedged, what is your current position like?
A: Usually our hygiene policy hedges approximately 50 percent of our net inflows on a rolling three months basis. So this is a policy we adopted a few months ago. We follow that policy consistently. So I would say about half our international revenues are hedged on a net inflow basis, on a rolling three months.
Reema: Can you tell us what is the percentage of revenues that you get from the eurozone?
A: About 30 percent of our revenues come from Europe right now.
Reema: Can you tell us what the sensitivity would be like. So let us assume that there is another 10 percent movement in the euro, roughly what is the sensitivity, we have spoken about the sensitivity of the rupee on the margins, the way it moves, can you tell us for euro how it stands?
A: Usually, 1 percent change in the rupee/dollar rate is 35-40 bps impact to margin and the dollar is the largest currency for us from a revenue contract perspective. Euro and GBP are the second and the third largest but they are much smaller compared to the dollar. By far the majority of our revenues come in dollars.
Reema: Similarly can you give us a sensitivity to the one percent movement in euro as well? What can be the cross currency headwind?
A: Usually we don't look at it that way because India doesn't trade against any other currency except that dollar directly. So even if the rupee changes with respect to euro, it is always a rupee/dollar and dollar/euro determination. So therefore, the dollar/rupee fluctuation is the more relevant calculation for us.
Stay tuned for more…
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