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MOSL: TECHNOLOGY-Assessing currency's relative beneficiaries across our coverage

Technology: Assessing currency's relative beneficiaries across our coverage

 

• While the industry is secularly a winner in terms of absolute earnings as the INR depreciates, relative benefits are another story altogether. Three key aspects will determine the extent to which a company's earnings are sensitized to currency fluctuations:
• Mix of USD revenue bookings among other currencies
• Extent of onsite-offshore revenue mix - that will determine the net exposure after natural hedge; and
• The hedging policy in terms of duration and proportion of the net exposures hedged.
• Based on our assessment of the above parameters across our coverage universe, we see INFO as most favorably placed and TECHM the least among tier-I IT companies. In tier-II, we would expect MTCL to benefit the most and LTI the least.

 USD revenue bookings – advantage tier-II, INFO

• In the calendar year YTD, the INR has depreciated 10% v/s the USD. However, when looked at with reference to other major currencies, it is down 4% v/s GBP and only 1% v/s EUR.
• Had the weakening been comparable across currencies, the impact of a depreciating INR would have been felt on majority of the revenues. However, due to lesser weakening against other currencies, it becomes pertinent to check the percentage of revenue bookings in USD, which varies across the sector.
• A few companies report this exposure, but for others, revenue from North America is a reasonable proxy. Revenues booked in USD will be usually higher than that from the North America geography, as there are some contracts signed in USD in other geographies too.