The rupee slide spells both gains and challenges for SaaS firms

The weakening rupee offers an edge to most Indian SaaS firms that bill clients in dollars, but it also brings challenges to some. 

SaaS (software-as-a-service) companies that build solutions in India and sell them overseas, especially to customers in the United States, stand to gain from the depreciation of the Indian rupee against the US dollar. However, firms that have a sizeable business in the price-sensitive Indian market or rely on imported technologies have to deal with significant hurdles. 

The dollar’s strength stems from a dynamic interplay of various economic factors. The Federal Reserve’s strategic monetary policy, coupled with the strong economic performance by the US, have created an attractive investment climate. Global uncertainties and geopolitical tensions are also driving investors towards the dollar’s perceived stability. As a result, emerging market currencies like the rupee are facing pressure.

The rupee experienced its sharpest single-day decline in almost two years, closing on January 13 at a record low of 86.70 against the dollar. On January 21, it stood at 86.59 against the dollar.

Gains due to a strong dollar

Dollar-denominated revenue translates into higher rupee earnings for Indian SaaS firms with a significant customer base in the US. 

US-based SuperOps, which also has operations in Chennai, is one of the beneficiaries of the strong dollar. 

As it bills its customers in the US and around the globe in dollars, the company’s revenue is largely not impacted by the exchange rate fluctuations, says Arvind Parthiban, Co-founder and CEO of SuperOps, an AI-based SaaS platform for managed service providers. 

“Any export-related business, especially in the SaaS sector, is happy as long as the dollar value remains high,” remarks Hari Pragdish, Co-founder of EventHQ, a B2B SaaS company that helps enterprises manage their event marketing cycle.  

EventHQ’s parent company is in the US, and it has a subsidiary in Bengaluru, India. 

Pragdish believes a small revenue increase of 1-2%, due to the strong dollar, may not create much impact on the business. However, when the revenue rises by 4-5% or more, the impact is significant. He explains that gains on a larger scale could cover the salary of one senior resource for a year in Bengaluru or pay for three junior resources. This, in turn, could help generate more revenue.

Pragdish elaborates that, for larger companies dealing in billions of dollars, even a small change in revenue could translate into tens of millions of dollars—enough to run an entire team for a year. At that scale, even small fluctuations can benefit companies like Wipro, TCS, and Accenture, he adds. 

San Francisco- and Ahmedabad-based Middleware.io, an AI-powered cloud observability platform, has been able to decrease its operational costs in India with the gains from the strong dollar. 

Sawaram Suthar, Founding Director of Middleware.io, notes, “Our Indian operational costs decrease, as we can get more rupees with the same amount of dollars.”

This means the company can now cover expenses such as salary and rent in India with fewer dollars, thus improving its margins. 

From a planning perspective, the current exchange rate situation also helps the company manage its spending more efficiently and invest more in its Indian operations—on hiring, expanding office space, and developing products and services.  

Middleware can now offer competitive salaries and benefits to attract and retain top talent in India, as well as allocate resources to R&D initiatives and innovation, Suthar elaborates. 

The flip side

While exporters will gain, for SaaS companies serving the Indian market, the depreciating rupee presents challenges. 

As most SaaS companies operate globally, their services are usually priced in dollars. This means depreciation of the rupee against the dollar can run up the cost of services for the Indian customers of SaaS companies, potentially impacting domestic demand in the long run. 

Suthar elucidates, “For example, if our services are priced at $1,000 per month, the equivalent cost in rupees would increase from approximately Rs 80,000 to Rs 86,000, making it more expensive for our Indian customers.” 

Middleware.io, which has a sizeable number of clients in India (30-35%), is carefully considering the potential impact on its Indian customers and exploring strategies to mitigate any negative effect on demand.

Meanwhile, ZEPIC, a SaaS-based customer experience startup based in Delaware and Chennai, is offering discounts to its Indian customers in order to remain competitive in the price-sensitive Indian market. 

However, the startup benefits from Australian customers who are less price-conscious, says Sreelesh Pillai, Co-founder and Head of Growth, ZEPIC. 

In such times, securing more business in the US puts SaaS startups at an advantage. 

Pillai says ZEPIC aims to grow its US business—a goal shared by many SaaS companies.

If SaaS companies rely heavily on imported services or technologies, such as artificial intelligence and machine learning models and cloud infrastructure, priced in dollars, their operating costs will increase significantly, opines Parthiban. 

This can offset some of the gains from the strong dollar. 

Handling currency volatility 

Whether the rupee weakens or strengthens, currency hedging, though not universally adopted, remains a valuable tool for many SaaS companies in managing the financial risks linked to exchange rate volatility. The approach and extent of hedging will depend on each company’s circumstances and risk tolerance.

ZEPIC’s hedging approach involves investing in interest-generating instruments such as fixed deposits, when there is extra money in the bank. 

“Locking in a good rate upfront is essentially hedging,” says Pillai. 

Some SaaS firms, especially the large, established ones, collect payments upfront to avoid uncertainty. However, many smaller businesses often struggle with this. 

EventHQ charges some customers upfront based on the contract value; it sometimes uses annual contracts, which are paid on a monthly basis. For upfront annual payments, the dollar value is fixed at the time of the contract, thus avoiding any issues related to currency fluctuation. 

Some companies prefer shorter contracts (1-2 years, as opposed to 3-5 years) to shield themselves from the vagaries of the market, while others increase prices by 6-8% each year to ensure a steady income. 

Pillai also points out a growing trend wherein customers pay according to their actual consumption of the service; this offers SaaS companies flexibility in pricing.

What lies ahead

While exchange rates are volatile and subject to various economic and geopolitical factors, SaaS players foresee the current trend to carry on for another 6-12 months. This means companies serving overseas clients will continue to accrue gains. 

“This provides us with a window of opportunity to adapt and capitalise on the market dynamics,” says Middleware’s Suthar. 

As the rupee depreciates, Indian SaaS companies can seize the opportunity to offer high-quality services at “competitive prices”, making them more attractive to US clients. They can also attract new clients and grab a larger share of the US market. 

This can lead to increased demand and revenue growth, ultimately driving the growth of the Indian IT industry, he adds.