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To mitigate the risk of its bottomline getting affected by the rupee appreciation, Satyam Computer Services has stepped up its forward exchange contracts (sell) from $44.5 million as on June 30,2003 to $48 million by July end.
As of July 31, 2003, the company had outstanding foreign exchange contracts worth $48 million with maturity dates over the next 9 months, to cover the risks of US dollar to Indian rupee fluctuations.
"We expect that a majority of our revenues will continue to be generated in US dollars for the foreseeable future and that a significant portion of our expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in Indian rupees. Consequently, our results of operations will be affected to the extent the rupee appreciates/ depreciates against the US dollar," G Jayaraman, vice president (corporate affairs) and company secretary said.
During the first quarter of current fiscal the rupee appreciated to 46.40 (per one USD) against 47.53 on March 31, 2003.
Against this, during the first quarter of previous year the rupee depreciated to 48.91 from 48.83 as on March 31, 2002. As a result, the loss on foreign exchange transactions was $2.3 million in the first quarter of the current fiscal compared to a gain of $1.1 million in the three months ended June 30, 2002.
Hence we are stepping up our forward contracts, he explained. In the first quarter 86.7 per cent of Satyam's total revenues were generated in US dollars against 81.2 per cent in the first quarter of the last fiscal.
A significant amount of the expenses were incurred in rupees and the balance incurred in US dollars, European currencies and Japanese yen.
As of June 30, 2003, Satyam had $75.1 million in cash and cash equivalents, $2.6 million in secured rupee denominated loans of Satyam Associate Trust and $1.5 million of other outstanding loans denominated in rupee.
The company had an unused short term working capital line of credit of $7.5 million and unused non-funded lines of credit of $6.0 million.
The company estimates capital expenditures of approximately $30 million during the current fiscal, principally to finance construction of new facilities in its offshore centres; expand facilities in offshore centers within the country and establish offsite centres outside the country.
The company is constructing a new campus at Bangalore which is expected to be completed shortly.
"Our existing cash and cash equivalents and funds generated from operations will be sufficient to meet these requirements. After fiscal 2004, we may require additional financing to fund our working capital and capital expenditure requirements," Jayaraman said.
Interestingly, the company has taken up a severe cost cutting exercise to make up for the falling margins. During the first quarter selling, general and administrative expenses decreased 27.7 per cent to $19.6 million from $27.1 million.
SGA expenses represented 16.1 per cent of revenues compared to 25.6 per cent last year. The decrease in associate compensation and benefits expenses is due to decrease in number of non technical associates by 1,020 to 1,030 from 2,050 in June 2002, Jayaraman explained.