High currency volatility hindering plans: MindTree

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High currency volatility hindering plans: MindTree

Krishnakumar Natrajan, MD and CEO, MindTree Consulting expects improvement in sequential margins on rupee depreciation, but admits the volatility in the currency is hindering the company’s plans.

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Krishnakumar Natrajan, MD and CEO, MindTree Consulting expects improvement in sequential margins on rupee depreciation, but admits the volatility in the currency is hindering the company's plans.

The rupee breached the 53 per dollar mark to open at 53.10 on Tuesday, sinking to an all-time low of 53.17 to a dollar. It had closed at all-time low in the previous session after a severe contraction in IIP data and growing European concerns made investors wary.

"The company continued to adopt conservative hedging," he informed adding, "we hedge 50% of the 12-month rolling exposure."  

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: After learning the lessons of Q2 are you relatively unhedged? What is the percentage gain in your margins because of the rupee?

A: One thing we have realised is that not to try and take a call on the rupee. At MindTree we still continue to have our conservative hedging policy where we hedge about 50% of our 12 month rolling receivables; we have not changed from that.

The level of volatility is a concern while we might see positive initial euphoria saying that it will help improve margins. But from an industry point of view there is concern on the high level of volatility of the rupee because it really makes any planning completely irreverent. So from a MindTree context you will have some upside based on 50% of unhedged receivables which we have, partly that will get offset with mark to market (MTM) losses which will be there but overall there is be a positive impact.

Q: Apart from the volatility in the currency, the other worry has been the revenue growth. You might have heard the tier I peers like Infosys saying that they may not be able to meet their guidance. They are asking workers to work on weekends as well to meet that revenue growth. You have seen about 22% revenue growth in the first half of the fiscal, how doest the second half look? Does it look like a big struggle to meet that target?

A: What we see from our customers is subsequent concerns for some of the macro economy. We have been in touch with top 50 customers intensively and they account for over 70% of our revenues.

At this juncture we are not seeing any negative messages from these top customers. Yes, there have been some delays in finalisation of the budget but at this time we don't have any project cancellations or budgets being stopped.

The full process has certainly got elongated. What we had anticipated for sales cycle, deals of USD 2-4 million, which used to run at eight-nine weeks, has got elongated. But certainly we are not seeing any contraction in the demand at this juncture. If budgets and finalisation have got delayed, many among the top 30 customers have indicated that in early January they will come back. But at this point in time we are not seeing anybody giving us a message saying budgets are going to be cut dramatically.

Q: What about other issues like hires, are they cheaper now given the suddenly saddened environment in India, would all that add to margins? Overall would you do better given that there could be little pressure on revenue but a lot of other inputs could also get a little cheaper for you?

A: We see talents market is starting to get much more stable, which is reflective in the dropping attrition rate but still it is not at a level where we are comfortable with. Ideally we would like to have sub-15% attrition, probably we are running at least 2-3% points above that.

Q: But lower than the 21.7% that you reported last time?

A: That is right, certainly it is lower. Also strategies are very company specific for MindTree. We had to correct our pyramid so we are adding a large number of campus minds within MindTree. This year we added about 1700 people. So to that extent the dependency on latter is also reducing but we see that environment becoming far more stable which will be reflective in terms of what you could anticipate as the wage appreciation next year. We do anticipate that there will be at least 1-2% point lower than the current year.