See short-term impact due to rising Re: Su-Raj Diamonds

How will a rising rupee impact the jewellery industry that is dependent on exports? According to Jatin Mehta, Chairman and Managing Director of Su-Raj Diamonds there will be a short-term financial impact due to a steep rupee appreciation in the next one to two months. How will a rising rupee impact the jewellery industry that is dependent on exports? According to Jatin Mehta, Chairman and Managing Director of Su-Raj Diamonds, there will be a short-term financial impact due to a steep rupee appreciation in the next one to two months.

If the rupee appreciates by about 4-5%, it would affect the company’s bottomline by about 1.5-2%. The company is yet to decide whether to hedge the Indian unit at these levels due to its fast appreciation.

Excerpts from CNBC-TV18’s exclusive interview with Jatin Mehta:

Q: Put into perspective the hit that the rupee appreciation might bring about to your financials?

A: There will be a short-term impact due to the steep appreciation in the rupee in the next one to two months, because all imports would be at a higher price and exports will return a lower value due to the existing premiums. All goods that are shipped on credit will receive the benefit of premiums. On the other hand, we being a value-added commodity, the labour component will get affected. Labour costs may rise but overall I don’t think there will be a major impact on the gem and jewellery industry.

Q: Can you quantify the kind of hit that you would see in case the rupee continues to appreciate particularly in the first quarter of FY08 because the expectation is that it can go to 41.50?

A: The hit would be on 20-25% of the value-added component; so if the rupee really appreciates by 4-5%, it would be about 1.5-2% on our bottomline.

Q: Are you looking at hedging the rupee at this point in time or do you do that as a practice to safeguard yourself?

A: We hedge the rupee to a certain extent but this time we don’t know whether one should do it or not because it has appreciated so fast. One would have really liked the way the RBI does it to allow the Indian currency to gradually appreciate, since the soft landing doesn’t hurt anybody but this type of appreciation would hurt the bottomline a bit more. To sell at this moment one would prefer to wait and see if there is a correction in a few days.

Q: In your talks with bankers do you get a sense that there will be some sort of a bottoming out that the rupee might witness? At which level will you get some ease?

A: I don’t think anybody but the RBI knows because of their concerns on inflation; we do not know what is their internal view as to how much they will allow the rupee to appreciate.