The improvement in operating margins is expected to continue, says Arvind Thakur, CEO and joint Managing Director, NIIT Technologies.
He says gross margins have begun to pick up with many projects going operational.
In an interview to CNBC-TV18, Thakur says he expect the coming financial year to better than the current one as the US market is recovering.
He expects the new deal wins in this quarter to exceed the USD 100 million run rate.Thakur expects a cross currency impact of 50 basis points on margins this quarter and around 180-200 basis points on the topline this quarter.
Below is the transcript of Arvind Thakur's interview with Sumaira Abidi & Reema Tendulkar.
Reema: Of-late the comments that have come out from most of the IT companies like Tata Consultancy Services (TCS) and now Wipro have indicated that there will be a significant headwind due to the movement of currencies. What according to you will be the impact of cross currency on NIIT Technologies’ revenues as well as margins as per the currency rate right now?
A: That is a significant headwind. We are seeing that the euro has sharply declined about 10 percent between the two quarters and even the Great Britain pound (GBP) has declined about 5-6 percent. Some of the other currencies in which we operate like Australia also has had decline in the Australian dollar. So, indeed, we will see an impact of cross currency on the topline and that is what is being mentioned by other companies in the industry as well. If the currencies remain at the same level, we will see an impact going into the next year as well for the full financial year.
Reema: Is it possible to quantify what the cross currency impact could be even a rough range?
A: About 180 to 200 basis points on the topline and maybe about 50 basis points on the operating margin.
Sumaira: There are some reports which indicate that your company is close to wining a couple of large deals of the size of about USD 20 million. Would you be in a position to corroborate these reports and if yes, could you share some details or throw some light on what can we expect?
A: I cannot comment on that. When the deals happen that is when we communicate that it happens. However, what we are seeing is good recovery as far as markets like the US are concerned. We see some amount of consolidation happening with respect to some of our key clients which create more opportunities for us to engage in a significant manner.
Reema: One of your peers, I think it was Mindtree who spoke about that they are facing some delays in two of their retail clients. Has NIIT Technologies faced any such delays as well as some issues with budget closures in this quarter?
A: No, I don’t think. That would be company specific. As far as we are concerned, like I said, we are very focused on the US markets, on the European markets and US in particular. We are seeing recovery in the economy. So, that is a space where we expect to see growth in our business.
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Sumaira: Last quarter your new orders were about a USD 100 million, it’s been above that for the last two quarters. Is that the going run rate that we can expect in Q4 and also if you could tell us what your executable order book could like at the end of FY15?
A: We do not give any specific guidance on any quarter or for the year. However, we like to maintain order intake at levels which are more than USD 100 million because the intake should exceed the revenue run rate in every quarter.
Reema: Stripped to the currency movement - is this quarter panning out on expected lines for you?
A: We do not give specific guidance on a specific quarter although qualitatively it is fine.
Reema: In the previous quarter you also managed to improve your margins even not just because of the rupee benefit but also because of your gross margins improved. There were some productivity initiatives which showed up in your margins and helped you all. What is the outlook on margins going ahead in FY16? Can we continue to expect an improvement in your gross margins stripped to what happens because of currency?
A: We have seen an improvement in our margins on account of various things including some of our large projects which are moving out of the transition phase into operational phase and that is going to continue into the next year. So we can continue to see improvement in our margin going forward.
Reema: How much do you think you could improve your margins on a constant currency basis?
A: We improved our margins 50 basis points quarter-on-quarter (QoQ) last year that is the kind of improvement that you can expect going forward as well.
Reema: What is the outlook looking for FY16 do you think it will be a better year for the company as compared to FY15 and will growth be in the next year closer to the industry average, the NASSCOM guidance?
A: We do not give any specific guidance but as a growth in FY16 definitely will be better than FY15.
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