Weakened Rupee not to affect IT Sector's Outlook in India
VARINDIA- INDIA'S FRONTLINE IT MAGAZINE
The weak rupee will help revenue growth, as the effect of translation increases the ability of IT companies to price better than global rivals. It will also make India-based IT service companies competitive and increase their chances of winning new and renewal contracts. 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.
Large dividend payouts, share buybacks or debt-funded acquisitions are expected to have negative impact on the ratings of the IT companies. This may drain liquidity or increase financial leverage.
The India Ratings and Research firm (Ind-Ra) has released a report on the Indian IT services industry revealing that the outlook of IT companies is expected to remain stable in H213. The research firm expects revenue growth of select IT companies to exceed 10% YoY in H213 on 6%-7% rupee deterioration in Q213 as against 8% YoY revenue growth in the last four quarters.
Ind-Ra also believes 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.
Ind-Ra also believes 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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The weak rupee will help revenue growth, as the effect of translation increases the ability of IT companies to price better than global rivals. It will also make India-based IT service companies competitive and increase their chances of winning new and renewal contracts. 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.
Large dividend payouts, share buybacks or debt-funded acquisitions are expected to have negative impact on the ratings of the IT companies. This may drain liquidity or increase financial leverage.