NIIT Tech stock breaks the range; jumps to two-month high on weaker rupee

MUMBAI: After staying range-bound for about two months, the stock of NIIT Technologies has once again started moving up. In the past three trading sessions, it has gained 6% taking the price to a two-month high of Rs 276 during the Tuesday afternoon on BSE. The sharp depreciation in the rupee over the past few weeks has led to a bounce back in some of the frontline IT stocks as weaker rupee boosts revenue and earnings of exporters.

The rupee has fallen by 7-8% against the dollar, the euro, and the pound during the June quarter so far. “A 1% drop in the rupee helps our operating margin by 25-30 basis points,” NIIT Tech’s CFO Pratibha Advani told ET during a telephonic conversation. The actual benefit of the rupee’s recent slide, however, will be lower since the company hedged a portion of the net receivables in the forward foreign exchange market at lower conversion rate, she added.

As a part of the hedging strategy, the company has hedged 90% of net receivables for the June quarter at Rs 57.3 per dollar. If the rupee closes at a rate above this level, say at Rs 58, the company will book hedging loss, which will reduce its profit and profitability.

The company had reported 66 basis points improvement in operating margin at 16.5% in the March 2013 quarter. However, it is expected to fall by 200-250 basis points for the June quarter, which is also the first quarter of its fiscal, due to the 7% increase in the offshore salaries.

While the first quarter is traditionally weak for revenue growth, the company expects to beat the revenue forecast of 12-14% growth for FY14 as predicted by the industry agency Nasscom. “We have been focusing on better value proposition for clients, balanced geographical mix, and non-linear business model. This should help in future growth,” said Advani.