I had doubts on the FX handling of this business. On going through the material on the company my understanding is as below.
1) The company imports its raw materials from outside, hence any appreciation in the USD/EUR (depending in which CCY it pays) will benefit the company. Hence the company needs to hedge on the required CCY (let us call this the first leg)
2) Company derives majority of its revenues from outside, 55-60% from Europe and 15-20% from USA. Hence a depreciating CCY (EUR/USD) will help the company. Company needs to hedge against appreciation (let us call this the 2nd leg)
3) As the company imports its RM, the import and export gives it a natural hedge. However degree of imports need to be weighed against the exports.
4) Company books revenues on the day of generating the invoice, the exchange rate that it takes is the once that is provided by the custom department. However when it realizes the amount depending on what the rate is, it books a profit/loss and puts it on the P&L account.
5) The company realization per tonne may be effected by CCY. In Q1FY16 the management realized 219000 per tonne, the figure for Q1FY15 was 241000. As per the management this is not due to price drop but due to CCY movements which is not hedged uniformly through out the year.
However on going through few of the con calls, the management has not hedged the second leg EUR-Rupee. It seems that the company is taking a bet on the direction of the currency.
The above is my simple understanding. I would like to understand if there is anything more to it and what more does one look at. However one would buy the business based on its operational strength and not on any currency movements.