Mindtree reported a good set of fourth quarter earnings with dollar revenue and margins both beating street estimates.
In an interview with CNBC-TV18, Rostow Ravanan, MD & CEO and JC Narasimhan, CFO of Mindtree spoke about their fourth quarter performance and the outlook going forward.
Ravanan said although forex moves (sharp appreciation in rupee) impacted the bottomline in Q4. However, the company is not looking at changing its hedging policy,he said.
He said the deal pipeline both in Q3 and Q4 was very good and will continue to remain strong going forward too. “Whether it is large deals, or renewals or digital, on any dimension, the pipeline is very strong which is one of the reasons why we are so confident of our outlook for next year that we will definitely grow low double digits,” he added.
Below is the transcript of the interview.
Q: Will you be changing your foreign policy and what is that dragged you down this quarter for certain parameter?
Ravanan: The largest impact for the quarter was actually the foreign exchange (Forex), like you pointed out, but otherwise, it has been an extremely satisfying quarter. We beat our own expectations in the beginning of the quarter. What I was particularly happy also the turnaround in both Bluefin and Magnet 360. Both of them were areas which were causes for concern that we highlighted to your viewers some time back.
However, Bluefin had a 11 percent growth and Magnet had a 4.8 percent growth. So, overall it has been a very positive performance for the quarter.
On Forex, the issue was outside our control because the rupee appreciated very sharply in the last few days of March. So, debtors that were historically recognised, maybe December, January or February, all had to be restated on March 31 with the new rate. It was purely because of a sudden sharp appreciation.
So, changing in the Forex policy will anyway not help this either. Even I had hedged more or hedged less or done anything else, it still would not have helped us with debtor's restatement, so we are not planning any change to our hedging policy based on this.
Q: Also if you can give us an overview in terms of your utilisation margin is really up, but is there more room to improve as far as utilisation goes? And also, in terms of expanding your own margins, what is it that you will be looking at in terms of levers to improve profitability going into next year?
Narasimhan: I will take the second question first. The factors, levers that are available for our margin improvement, of course, utilisation is our number one factor. Yes, there is a scope for improvement of utilisation from the current level, but what we should consider is our definition of utilisation is one of the most rigid or tighter one, and considering our scale, we need to manage our utilisation and have some amount of bench for taking up the new projects also. So, it will be between 73 and 74 percent of utilisation as ideal utilisation for the company.
Taking the other levers, onsite-offshore mix is an important lever for us. We are working on that and we are also trying to get the operational improvement which is going to improve our gross margin level at each project. We have actually implemented lot of new initiatives like Lean which is going to keep improving the margin for us on a continuous basis. This is actually going to help us improve the earnings before interest, taxes, depreciation and amortisation (EBITDA) in the coming year.
Ravanan: I would just add one more thing to it. Improvement in margins at both Bluefin and Magnet will also be one strong margin lever for us. Already in this quarter, you saw that with the revenue growth, Bluefin came back to profitability. So a little bit more push on the same dimension will also bring profitability. So improving the profitability in our acquired entities is also one of the levers for margin improvement at a Mindtree level.
Q: Is retail consumer packaged goods (CPG) solutions vertical going to be still a challenge, a pain point going into next year as well?
Ravanan: Not really. There is a one-off cases in this quarter. For the full year, retail CPG and manufacturing did have reasonably good growth. Based on what we are seeing right now, it is an overall portfolio. Some customers are in a little bit of trouble. Some new customers which we have won, which are ramping up fairly well. You will remember last quarter, we announced the largest digital deal in the history of Mindtree, helping a CPG company completely transform their customer connect initiatives. So since some of these initiatives are more prevalent in consumer facing businesses like retail, so you expect that to come back into growth fairly more quickly. Not anticipating any major challenges on the retail CPG, manufacturing vertical right now.
Q: Also, if you can give us a sense of the deal pipeline and also in terms of really outlook geographically for FY18.Ravanan: The deal pipeline continues to be extremely strong. If you look at Q3, we announced deal wins of USD 300 plus million. If you look at Q4, we announced deal wins of USD 200 plus million. So, whether it is large deals, or renewals or digital, on any dimension, the pipeline is very strong which is one of the reasons why we are so confident of our outlook for next year that we will definitely grow low double digits. So, Mindtree will likely be amongst the highest growing companies even in FY18.