Software company Mindtree’s management, which posted its fourth quarter earnings today is quite optimistic about deal pipeline, clients spending and earnings performance in 2013-14.
Software company Mindtree 's management, which posted its fourth quarter earnings today, is quite optimistic about deal pipeline, clients spending and earnings performance in 2013-14.
In a conversation with CNBC-TV18, Krishnakumar Natarajan, CEO and Managing Director and Rostow Ravanan, CFO ensured investors that considering the enhancement in deal pipeline and client interaction FY14 be a better year for the company than FY13.
The company, which reported a 20 percent sequential decline in net profit in Q4 at Rs 79 crores believes that first quarter of 2013-14 will have better earnings growth than the last quarter.
“We would like to share that FY14 looks better than FY13. This optimism comes from the conversations we have had with our top 40 customers. Except one customer all of them are having positive conversations,” Krishnakumar Natarajan said.
The company sees the strong performance of cloud engineering business to continue in this financial year. In January-March, Mindtree won new deals which included managed services for application and infrastructure support for a large hotel chain and a multi-year agreement with an infrastructure services provider in one of the largest emerging market economies for cloud platform support.
The mid-tier software company’s revenue for the Jan-March quarter rose 4 percent sequentially to Rs 612 crore.
Below is the verbatim transcript of the interview.
Q1: If you could start off by telling us about FY14 and whether its looking better than FY13. Will the company be growing inline with the National Association of Software and Services Companies (NASSCOM) guidance of 12-14 percent in FY14?
Natarajan: We would like to share that FY14 looks better than FY13. This optimism comes from the conversations we have had with our top 40 customers. Except one customer all of them are having positive conversations. Many customers have reinitiated initiatives which they had put on hold. So, overall we do believe FY14 will be far better than FY13.
Coming to your other question of how we would do with respect to the NASSCOM estimates of 12-14 percent, what I do see is that NASSCOMs industry estimate is based on sub-segment growth which they see in areas like IT services, Business Process Management (BPM) and so on. Mindtree is not present in many of these segments. So, it maybe difficult to compare our growth with the NASSCOM estimates but what we do believe is, even if we look at the immediate quarter which is Q1, we are confident that Q1 on growth would be better than Q4 of FY13 and we also see growth in FY14 being far more even than what we had seen in FY13 except some seasonal weakness in Q3. All of this gives us the confidence that FY14 will be better than FY13 for Mindtree.
Q: The product engineering business was down about 4 percent in FY13, what is the outlook for FY14? Is that particular business likely to return to growth and what would your outlook be on IT services in general?
Ravanan: The product services business had a challenging part in the beginning of the year, but they have recovered quite well. They had a growth in Q2 and in Q4. So, we believe that the tide has turned for the engineering services business. The management team has also put in place several initiatives, like we restructured some of the verticals, reoriented some of the sales force in that segment to help drive greater growth in the business. As of now we believe that the engineering services business will deliver reasonable growth for FY14, and on discretionary spend we see a little bit of a mixed picture. Some of our clients are confident and they are kick starting their discretionary spend projects and in few segments the customers are little more conservative and they are in wait and watch mode.
Q: One of the things which have been spoken about a lot with regards to Mindtree is any sort of increase in margins going forward. Do you see margins improving further because of the fact that they have already improved around 500 basis points in the previous fiscal hence it is possibly going to be range bound going forward?
Ravanan: As of now margin are stable excluding the impact of currency. There are benefits that we see to margins coming out of growth and a few of the operating efficiency improvements that we are continuing to work on, however there will be some offsets because of salary hike, increases in visa cost and other areas as well. So, put them together we expect margins to remain stable for FY14, excluding the impact of currency.
Q: We just wanted to understand how exactly the deal pipeline is looking now and do you see any stress from any particular type of clients in the coming fiscal?
Natarajan: The deal pipeline now is far better than what we had seen 12 months back. On a comparative basis the number of opportunities which we are pursuing compared to 12 months back is far higher. The quality of those opportunities is also better and particularly segments like consumer products, insurance are looking very good. To that extent we do believe that this will pave the way for a strong growth momentum in FY14.
Mindtree stock price
On July 23, 2014, Mindtree closed at Rs 975.05, up Rs 17.70, or 1.85 percent. The 52-week high of the share was Rs 1724.95 and the 52-week low was Rs 748.00.
The company's trailing 12-month (TTM) EPS was at Rs 53.25 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 18.31. The latest book value of the company is Rs 211.09 per share. At current value, the price-to-book value of the company is 4.62.
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