Feb 15, 2017 06:51 PM IST | Source: CNBC-TV18

Mindtree sees a 2-2.5% impact on margins on H1-B visa bill

Given the indication that we have seen till now, look at the deal signings we had in the last quarter, all indications are 2017 should be better than 2016, said Parthasarathy NS, COO, Mindtree.

Despite the threat of US visa bill hanging looming large, Mindtree Chief Operating Officer Parthasarathy NS is confident that the tech company will do better in 2017 than 2016 aided by deal wins. The growth will be around 10-12 percent as compared to industry growth of 14-15%, he said.

If the new US visa bill is passed, Mindtree would see a staggered impact of 2-2.5 percent on the margins, said Parthasarathy in an interview to CNBC-TV18 from the sidelines of Nasscom Leadership Forum. Mindtree has already increased local hiring but the demand-supply gap is a worry, he added.

Growth over the next 2 years for the digital business would be in double-digits, he said.

Below is the transcript of Parthasarathy NS's interview to Kritika Saxena on CNBC-TV18.

Q: How is the visa bill going to impact the company's margins?

A: We have done a broad estimate, based on certain assumptions, obviously you make some assumptions, and we believe it will be between 2 percent and 2.5 percent for us.

Q: 2-2.5 percent as and when it is implemented?

A: Yes and it will get staggered.

Q: Growth in 2016 has been significantly slower for IT players versus the hay and golden days of 2014, 2015. Yes, I understand a significant portion of that is because of the shift to digital. But what are the other reasons as to why there has been a slowdown and in your perspective, do you believe that 2017 will be a better year than 2016?

A: Let me start with 2017 first. Given the indication that we have seen till now, look at the deal signings we had in the last quarter, all indications are 2017 should be better than 2016. But that is clouded by all the operating changes that is happening in the visa regime and everything the new administration is talking about. So, we will have to wait and watch, but the indications are positive, number one. One of the reasons why the slowdown happened is because if you look at the spend in running the business, that was getting lower and lower either because of pricing pressure or the customer said, I want you to do the same work with lesser number of people and the digital pick up did not happen as fast as what one expected. So it is a combination of these two.

Q: So, it was a wait and watch, more where clients were on a pause.

A: Exactly which we now believe more and more customers were coming forward saying there is clarity in terms of how they want to transfer their business digitally. So, as that picks in, we believe the growth momentum will come back.

Q: So, in 2017 for instance, are you expecting the growth momentum to come back to levels of 10-12 percent or could it cross the 14-15 percent levels in terms of growth?

A: Too early to judge that because though customers' budgets are cleared and they are still not openly discussing that. We are talking to a lot of customers. My personal view is it will not come back to 14-15 percent growth rates, I think it will be more like 10-12 percent is what I believe.

Q: As far as investor returns are concerned, Cognizant has just done a buy back. Recently, there was a statement that you had given talking about how you are actively looking at options to look at investor returns over and above dividends. What are these options that you could look at?

A: As you have seen in our last quarter results, that is the first time we made a statement saying that we are looking at our capital allocation policies, so that is a discussion going on with the board right now. I do not think we have reached any conclusion in terms of what the details are. Probably it will take a little more time to come up with real options that are available.

Q: Would buy back be one of the options?

A: We are exploring all options, but I am really not a financial expert to say that.

Q: Because buy back seems to be something that investors are asking for. I am not sure if this is a time line, but investors across the board, be it Infosys, Cognizant, Tata Consultancy Services (TCS) are actively asking for a buyback or some kind of a clear capital allocation or capital return policy for shareholders.

A: We also have to look at it in perspective. When you are sitting on so much of cash, obviously your approach will be very different compared to somebody like us. We are very keen to grow faster. We are very keen to look at acquisitions as well as and when they come up. So, it will be different for different companies. I do not think we can generalise that.
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