The weakening rupee against the dollar by almost 10 percent in August this year is creating a huge impact on the enterprise technology market in India. Amidst a 'not so good' economy and subdued demand from organizations--a trend that started at the begining of 2013--the ecosystem of distributors and channel partners are getting ready for hard times in the next couple of months, at least.
"Margins have come down, of course. Channel partners often have to take a hit as customer budgets are fixed at old rates and distributors often cannot supply at those rates. So we are sandwiched in between and have to take a hit!" says N.K. Mehta, CEO & MD, Secure Network Solutions. The immediate effect comes from having to honour existing quotes and pending orders for the Delhi-based ACPL Systems. "We made quotes to our customer keeping the average dollar fluctuation in mind. But this sharp hike was never expected in wildest of our dreams," says CEO Vishal Bindra.
"Either we lose a deal to a competitor or decide to close with wafer-thin margins," says Devang Jasani, CEO, Meridian Infotech. "Some order are put on hold because we cannot close a deal at prices based on proposal made in last 30 days with validity of 30 days or more," he adds. "The news is bad sentiment for business and we are educating customer and putting terms which protects us from price variations," says Khetan Khimani of Microlink Solutions.
Who's at Loss: Disty or Partner ?
On a long term basis, especially in IT industry, prices keep going down, and products keep becoming more feature-rich, so the impact would not be much, says Paras Shah, CEO, Neoteric Infomatique. "The larger impact of the sluggish economy is slowing down the potential growth of the industry," says Shah. Sriram S. CEO, iValue InfoSolutions comments, "The sudden depreciation in the rupee and the quantum of variation have created new issues, delayed decisions and have impacted profitability. IT budgets have reduced by over 20% since the majority of IT software and hardware are imported.
"The immediate and mid-term effects is lower margins and bottom lines being hit badly, says Ashok kumar, CEO & MD, Rah Infotech. "We have resorted to hedging to absorb the impact as much as possible," he adds. "We are also negotiating with vendors for better pricing and discounting."
"None of my end customers has absorbed the increase. They push the OEM and OEM is pushing partners and distys," says Bindra. "In most cases, we, as partners, need to absorb the price hike," agrees Jasani.
At Pune-based Aashna Cloudtech, MD Biswas Nair says, "We have been transparent to the client in terms of billing but again considering the daily fluctuations our payouts to our principals are affected. On a mid-term basis, we will pass the benefits to customers and absorb some of the losses."
"We absorb price hikes at most times and to some extent the OEM does (if an order has been negotiated with their knowledge)," says Khimani. "We are offering the flexibility to customers to choose depending on their convenience and their foreign currency exposures," says Nair.
Distributors, too, feel that end customers are the least affected from the depreciating rupee. The disty and partner community will be impacted with pressures on profits and lesser ability of vendors to support partners, thanks to the impact on their P&L, says Shah at Neoteric Informatique. With the rupee weakening at such a rapid pace, the entire eco-system has taken a beating of which vendors and distributors absorb the most while trying to cushion partners, feels Ashok.
"Customer's are reluctant to increase prices, VAR's and VAD's do not make margins to offset over 20% depreciation and hence look up to OEMs for support. This calls for support from all stakeholders including customers," feels Sriram.
Lesser Margins, Delayed projects
Giving a quote in USD or in INR with few days' validity only is the immediate precaution to absorb this change of price, says Mehta. "We are taking help of principals and their distributors to provide us back-to-back validity of price," says Jasani.
There is no one method to overcome this situation says Bindra. "We had to honour our quotes and very few vendors have been supportive in this situation. We are requesting OEMs to quote us in INR only and make sure these quotes are valid for fixed period of time, he says.
The short-term impact of the rupee's devaluation does have a bearing on disties and vendors. However, in the long term; the gap gets absorbed by consumers says Shah. "We may witness short-term delays in project execution by end-customers due to cost-escalation but once the price-hike becomes a reality, there might be renewed momentum, says Shah at Neoteric.
The rupee depreciation is definitely postponing projects, says Bindra. Only critical or urgent requirements are converting into order says Jasani.
The strengthening of the dollar will make customers think twice before investing in IT infrastructure and there is every possibility of projects being postponed till the rupee recovers, says Kumar at RAH Infotech.
The depreciation during August 2013 is the biggest ever, hence its impact on business will be serious and prolonged, says Sriram. VAD's need to work closely with OEM's to reduce the impact on partner and customer as they are best equipped to support others during such challenging times, says Sriram at iValue Infosolutions.