International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CASE STUDY 16.1

Hedging Currency Risk at TT Textiles

Rajesh Chakravarthi

Executive Director, the Bharti Institute of Public Policy at the Indian School of Business

This case study accompanies Chapter 16 of International Corporate Finance.

As an exporter to more than 30 countries, TT Textiles was no newcomer to the area of currency risk. TT Textiles usually used forwards to manage currency risks. However, during 2006–2007, when the Indian rupee (INR) was expected to appreciate to an unprecedented high of INR 35/US$l, the company was considering longer-lasting currency hedges, including a three-year currency swap deal based on the historical stability of the Swiss franc (CHF) against the U.S. dollar.

TT TEXTILES

TT Textiles Ltd. was founded in 1949 by the family of Dr. Rikhab Chand Jain. It was India's first knitwear company to go public. It is a vertically integrated textile company with a presence in the entire cotton chain, from fiber to yarn to knitted fabric and garment. Its manufacturing facilities are located in all major garment centers such as Tirupur, Kolkata, Delhi, Varanasi, Saharanpur, and Kanpur. It has its ginning units in Gondal, Gujarat, and it has branches for cotton in Jalna, Maharashtra. The company's core businesses are in agricultural commodity, cotton, yarn, fabric, and garments, with markets spread all over the world as follows: About 75 percent of TT Textiles' revenues come from exports and at any particular point in time it would have an exposure of roughly ...