Confident of beating Nasscom revenue guidance for FY17: Mindtree

Nasscom had earlier guided that IT companies will see revenue from exports grow by 10-12 percent in FY17, less than FY16's guidance of 12-14 percent. But Mindtree's Managing Director and Chief Executive Officer, Rostow Ravanan says he is confident the company will beat Nasscom's guidance for FY17.He says the second quarter is seeing some challenges but the second half of current fiscal would be much better. He also guides margins in FY17 will remain flat. The global economic slowdown following Brexit has resulted in longer sale cycles in its UK and US business, says Ravanan.Below is the transcript of Rostow Ravanan’s interview to Reema Tendulkar and Nigel D’souza on CNBC-TV18.Nigel: A lot of buzz in terms of IT guidance that has been coming out. NASSCOM says it is going to be around 10-12 percent. We have a couple of big heavyweights, Infosys and Congnizant cutting guidance. Cognizant has cut guidance for the second time in the recent past. How sure are you of your guidance? What kind of guidance are you maintaining for FY17?A: It is difficult to compare our situation with the rest of the industry. Each company has its own positives and negatives. So, therefore speaking only for Mindtree, the year is panning out how we anticipated in the beginning of the year. We did announce that the year is starting off relatively slow. Q1 was a reasonably decent 2.3 percent growth. Q2 is seeing some challenges. But at least in our case, it was known, it was anticipated. But we do believe that the second half of the year will be much stronger for us. So, overall for the year, we think we will exceed the NASSCOM projections for the industry like we have done over the last 4-5 years.Reema: Do you believe NASSCOM’s estimates of 10-12 percent appear a tad bit aggressive considering the commentary that we have got from many players as well as Q1 has been a bit weak for not just your company but even for a couple of the other companies. Do you believe there is a case for the industry growth not being as high as 10-12 percent?A: Difficult to tell because all of us from the industry were involved when the original projections were given. So, this is a fairly bottom-up build up of that number. NASSCOM does have a fairly rigorous process by which that number is put together and shared with the world. Therefore unless everybody in the industry feels -- their own projections are not living up to their expectations and they downgrade their projections, then obviously, NASSCOM will put out a revised number. So, I do not think it is easy to make that call so early in the year.Nigel: But things are looking a little shaky based on the recent happenings in terms of the IT sector. Let us talk about your margins. In Q1 of this year, they came in at around 14.7-15 percent. That is the lowest reading we have seen in the last few years. Now, Q2 you are saying maybe you are facing some challenges. So, for you to scale up your margins from this 14.5-15 percent, you will have to do good margins in the second half of this year. How confident are you that margins will pick up in the second half of the year and what kind of margins can we look at for the entire year?A: I will make one observation on the previous comment that you have made. I would hesitate to say that our industry is on a shaky kind of a wicket. If you look at the overall strength of the industry, how many industries globally, today, have the confidence that they will triple in the next 10 years, which is what the Indian IT industry is forecasting for itself? There is a lot of conviction behind it. If you zoom out beyond one quarter or two quarters, the industry has just delivered phenomenal value for our customers. Therefore, the foundation of the industry is very strong and the outlook for our industry is extremely exciting. So, I definitely would not call that the industry is on a shaky ground at the moment.But coming to your question, our margins in Q1 were affected mainly by two very visible factors. One was the change to the new Indian Accounting Standards (Ind AS) accounting system. But on an operational business, one of our business units in UK which we acquired last year, Bluefin Solutions, had some project cancellations, etc. So that was part of it and part of it was Q1, we expensed the entire visa cost that we incurred for all the visa applications that we made. So it was specific incidents that happened to us in Q1.Like I said, Q2 sees some challenges, but biggest margin driver for us will be growth and since we are fairly confident of our growth in the second half of the year, bringing margins back under control clearly is possible for us in the second half of the year. So we do not see that as a very large challenge. There still are basically many things that need to go well. Customer traction, internal executions, many things need to go well. But you have a clear line of sight to get there.For full interview, watch accompanying video...