L&T must adopt a more conservative approach to hedging
When you look at a company like L&T, talks of a decelerating Indian economy seem to be nothing but pure hogwash. The company continues to show strong operating performance, as order inflow growth is set to beat expectations of 30% in FY’ 08.On this backdrop, news that its 100% subsidiary, UAE-based L&T International FZE (LTFZE, which undertakes commodity derivative transactions with a view to hedge commodity exposure of the L&T group companies) may post losses of as much as Rs.2 billion came as a bit of a rude shock to investors. LTFZE bet heavily against a fall in prices of zinc and some other commodities, a move that backfired, with zinc declining up to 62% over the past one year.
What is the implication of this event at this point of time? Abhishek Gumashta, analyst, Sharekhan reverts, “Consequently, in view of this development we expect LTFZE to report a net loss of Rs.1.013 billion in FY2008 as against our previous estimate of a profit of Rs.980 million.”
When you look at a company like L&T, talks of a decelerating Indian economy seem to be nothing but pure hogwash. The company continues to show strong operating performance, as order inflow growth is set to beat expectations of 30% in FY’ 08.On this backdrop, news that its 100% subsidiary, UAE-based L&T International FZE (LTFZE, which undertakes commodity derivative transactions with a view to hedge commodity exposure of the L&T group companies) may post losses of as much as Rs.2 billion came as a bit of a rude shock to investors. LTFZE bet heavily against a fall in prices of zinc and some other commodities, a move that backfired, with zinc declining up to 62% over the past one year.
What is the implication of this event at this point of time? Abhishek Gumashta, analyst, Sharekhan reverts, “Consequently, in view of this development we expect LTFZE to report a net loss of Rs.1.013 billion in FY2008 as against our previous estimate of a profit of Rs.980 million.”
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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