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After slow Q1, Mindtree hopes for faster growth

Bibhu Ranjan Mishra / Bengaluru 19 Jul 16 | 12:21 AM

The first quarter (Q1) of FY17 was relatively soft for Mindtree even though the mid-sized IT services company said it was expecting the growth to pick up in the last two quarters which would aid it to perform ahead of the industry in the ongoing fiscal as well.

In the quarter ended June 30, 2016, the Bengaluru-headquartered company reported 3.8% growth in its net profit at Rs 123.5 crore and 35.8% growth in revenues at Rs 1327.6 crore when compared with the same period last year.

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The growth in revenue was backed by a volume growth (growth in billable man-hours in a quarter) of 2.4%. However, on a sequential quarter basis (when compared with the previous quarter), the net profit declined 7.2% while the revenue was relatively flat with a growth of 0.6%.

While the company had posted strong growth in the previous quarter, the sequential growth in both topline and bottomline got impacted as owing to slow ramp ups by certain projects. Besides, net profit as well as profitability was impacted on a consolidated basis after taking into account the numbers of Bluefin Solutions, a UK-based company it had acquired in July last year for $66 million.

“While the global environment poses some short term challenges, we remain confident that our investments are on the right track to accelerate growth for our clients and Mindtree," said Rostow Ravanan, CEO & Managing Director, Mindtree. 

He said while Q2 was relatively soft owing to slower project ramp ups and some of the challenges are expected to continue in Q2, growth would start picking up after that and the company is expected to witness stronger growth in Q3 and Q4.

This because, Ravanan said, some of the recent wins has been in Europe and July and August typically tend to be slow months due to seasonality in that geography which is why the company is expecting the benefits of those deals to flow through in Q3.

During the quarter, Mindtree had signed $220 million of new orders including $184 million towards deal renewals. 

“If you look at the last 4 or 5 years, we have always grown faster than the industry, so nothing happens to change that picture even in this year. The industry (growth) projections are expected to be in 10-12% kind of range and Mindtree should be ahead of that even in this year," said Ravanan.

In the quarter under review, Mindtree’s operating margin stood at 14.7%, a decline of around 200 basis points over the previous quarter. While the margin got impacted negatively by 100 basis points owing to visa related expenses, other operational metrics including the loss from the acquired entity Bluefin impacted the profitability by 80 basis points.

The company however said that it is optimistic of holding the margin at the current level despite the expenses towards salary increases that would be effected from July 1, using various operational levers. The absence of visa related expenses in Q2 is also expected to help its margins. 

In line with the industry average, Mindtree has announced a compensation hike of 8-10% for its offshore employees and 2-4% for those located in onshore locations. During the quarter, Mindtree witnessed a spike in employee attrition which stood at 16.5 as compared to 15.7% in the previous quarter. The headcount of the company declined by over 500 at 16,110 after taking into account the employee attrition.

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