KPIT Cummins Infosystems Ltd, on Monday, announced that it has suffered a Mark-to-Market (MTM) loss of Rs 89.278 crore as on March 31, 2008. Since the company has not cancelled the contracts, this loss will be non-cash or notional loss, said a release.

The company said it is in the process of ascertaining the accounting treatment of the contracts in the light of the Accounting Standard - AS 30 - mandated by the ICAI on March 27.

Should the contracts be treated as ineffective hedges under AS 30, the MTM loss on these contracts would stand debited to the P&L account as an exceptional / one-time item. If  the contracts are treated as effective hedges, the MTM loss would be provided through reserves without affecting the P&L account.

“The company is fully of addressing the challenges that have arisen out of the current situation. Owing to our strong presence and growth in Europe, we have a natural hedge to tide over these contracts. We have a strong pipeline to sustain our growth momentum and attain position of leadership in our focus industries,” said Chairman & Group CEO KPIT Cummins SB Ravi Pandit. KPIT Cummins  derives about 98 per cent of it’s income in foreign currencies, and follows a policy of covering the risks arising out of foreign exchange fluctuations through forward contracts and options.

Forex transaction

During the year ended March 31, 2008, apart from forward contracts, the company entered into forex derivative transactions to the tune of $42.6mn, covering a period of five years. Apart from a committed Rupee-US dollar conversion rate, the contracts also had a component of contingent premium payment with reference to Euro-US dollar rates beyond bench-mark Euro-US dollar rates, said the company.

Its current and future exports in Euros, based on the current sales trend indicate that the net inflows to the company is higher than the amount on which the premium is payable on the forex derivative contracts.