Software services exporter Mindtree says it is seeing a significant improvement in deal closures and US dollar revenue growth in FY2014 is expected to be 3-4 percent higher than in FY2013.
The global economic uncertainty led by the Eurozone crisis hurt IT companies last year, as clients cut back on their discretionary spends and slowed down decision making.
Things have started to change now and most top IT companies have said that growth in 2013 will be better compared with 2012.
US clients are optimistic and the number and size of opportunities has also improved, Rostow Ravanan, CFO, told CNBC-TV18 on Tuesday.
"Opportunities in the marketplace definitely are a lot more attractive now...We believe deals are starting to get closed, so volume pick up for us should be quite confident. Pricing continues to be stable, so overall we have a very positive bullish outlook for FY14 compared to where we think FY13 will end," he said.
Over the April-Dec period, MindTree's net profit rose 74 percent year-on-year to Rs 260 crore, while income from software services was up 26 percent to Rs 1,749 crore.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Couple of brokerages have upped their rating of your company. If you looked at the deal pipeline compared to what it looked three to six months ago is it any brighter? Would you want to even up your guidance?
A: Opportunities in the marketplace definitely are a lot more attractive now. Even in December 2012 compared to December 2011 the opportunities in the pipeline, both in terms of the number of opportunities as well as the size of the opportunities are significantly better now.
Since, then from January to March progress has also been very satisfactory. We believe deals are starting to get closed. So, volume pick up for us should be quite confident. Pricing continues to be stable. Overall, we have a very positive bullish outlook for FY14 compared to where we think FY13 will end.
Q: How much better it could be? What could you end FY14 with in terms of revenue growth? How much better FY14 might be?
A: We officially do not give guidance. My sense is that we will probably have at least 3-4 percentage points higher growth in FY14 compared to wherever we end FY13 at.
Q: We were given to understand by one of the research reports that of your large clients only one indicated the possibility of decline in budgets. Is that the situation that the others are likely to give you larger orders?
A: Typically we see most of our US clients being very, very positive, both for their own businesses as well as on a general basis for the rest of the US economy. In Europe it is a little bit of a mixed signal.
Some of our Europe-based global clients are quite positive. Some of our clients which are headquartered in Europe and their businesses are predominantly European have little bit of pessimism given the macroeconomic situation in Europe. Broadly that is the way we are seeing the trend for FY14.
Q: What exactly the sustainable run rate for the margin picture would be? Do you see any significant improvement from the current 21 percent that you clocked?
A: In the December quarter we are approximately 20.5 percent at an operating profit level. My guess is about 2.5-3 percent of it came out of currency and maybe about 16-17 percent is what we have delivered operationally. That 16-17 percent is approximately a 200-250 bps improvement over the previous year.
The amount of profitability we have been able to increase through a combination of measures such as increased pricing, increased operational efficiency, improve utilisation. Some of those operational factors will give us a chance to improve maybe by 100-150 bps over the next four to six quarters. The bit that came out of currency to some extent is outside our control. So, that currency related impact will float with the market, but operationally we think we can increase profitability by at least 1 to 1.5 percentage points.
Q: Can you give us some colour on the product engineering services segment business as well? How is demand panning out over there?
A: There is some amount of good news in that segment. We think next year will probably be a decent growth year for them. This year private engineering services business will be probably close to flat or maybe a marginal decline, but next year that segment is also confident to show some amount of growth. The reason for the confidence is that we have one reasonable number of relatively larger opportunities in that business over the last few months.
So, that business will probably have some amount of growth next year. The IT services business is continuing to do well. Therefore the larger growth next year will come out of the IT services business with some amount of growth coming out from the engineering services business as well.
Q: What has been happening on the client side in terms of pushing revenues higher via client mining? Is that a trend that you are seeing in this year as well that you basically get higher amount of revenues from lesser number of clients as opposed to a larger basket?
A: Absolutely, that was the plan we had put in place about two years back. This has yielded very, very handsome results for us. If one looks at our client distribution, the number of USD 20 million clients, USD 10 million clients, USD 5 million clients have significantly improved over the last two years. That continues to be our focus. The client list that we have has a huge amount of potential, so we want to continue to do that.