Q4 growth may be slower than Q3 on order delay: Mindtree

IT services firm Mindtree today said that contrary to previous guidance, its fourth-quarter revenue growth is likely to come in below that seen in the third quarter.In an interview with CNBC-TV18, the company CEO and MD Krishnakumar Natarajan said a delay in commencement of certain projects in retail and banking and financial services vertical is expected to impact growth in this quarter. He added that the company's revenue growth rate as well as margins will be lower than Q3 figures. "There is a shift of 90-120 days in certain orders."Mindtree's standalone revenue growth in Q3 was 3.4 percent in dollar terms and margins were 18.7 percent.Despite the headwinds, Natarajan said he was confident of exceeding NASSCOM industry growth estimate of 10-12 percent for FY17.Below is the verbatim transcript of Krishnakumar Natarajan's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What is your current guidance for Q4?A: We had stated when we got the results of Q3 that since the beginning of the year when customers start framing budgets based on what we saw that the growth in Q4 will be better than the growth in Q3. What we are seeing is that there are delays in decision making particularly in two segments, banks, financial services & insurance (BFSI) vertical and the retail consumer products segment and because of that we do see that the growth in Q4 will only be marginal and will not be ahead of the Q3 growth as we had started earlier.Sonia: When you say marginal, can you quantify that for us because in Q3 your dollar revenue growth was just about 2.2 percent, are you trying to say it could be about 2 percent, could it be 1 percent. Can you give us any indication?A: We do not give guidance. Just to clarify that 2.4 percent was on a consolidated basis. What I am talking about now is on a standalone basis without the acquisitions. Our dollar revenue growth on a standalone basis in Q3 was 3.4 percent.Sonia: On a standalone basis it will be less than 3.4 percent is what you are saying, correct?A: It will be certainly much lesser than 3.4 percent.Sonia: On the margin front you mentioned that in your press release that the margins will be lower than what you saw in Q3. In Q3 your margins had fallen to about 17.6 percent. How much lower do you think it could get to in Q4?A: 17.6 percent was on the consolidated basis and standalone margin was 18.7 percent and because growth has slowed down, clearly that will have an impact on margin, which is what we had started in the press release. There are no other external circumstances which are impacting the margin. It is only the slower growth which is impacting margins.Latha: Would you therefore say that some of these orders that you anticipated in Q4 could get pushed to Q1. Is Q1 looking brighter?A: Its early days to what we are seeing, particularly in these two segments, I think more and more in terms of finalisation of budgets for calendar year '16 has not happened on a full year basis. Customers are still looking at a 90 day, 120 day type of commitments. So we will have a view on this when we come out with results for Q4 in early April.Sonia: You made an interesting point. Does it signify that the entire industry could be going through a slowdown or would it be safe to assume that it is only Mindtree's specific clients that are showcasing some delays?A: If you look at Mindtree's portfolio, we are seeing strong growth in our travel and hospitality segment, continued strong growth in our hi-tech segment.Sonia: I am just trying to see if I can extrapolate your slowdown to the rest of the industry as well?A: We are seeing within our portfolio the delay in decision making is in two segments, BFSI and retail consumer products. Now within that if I were to take a call, what would the impact Mindtree's portfolio is in the BFSI segment. Yes, we are seeing some change in decision making or slowdown in decision making in insurance and what we call the midsize financial institutions. So that portfolio is certainly slowing down whereas in retail and consumer products, it is probably broader across all these segments.Latha: Is there any indication as to how long this postponement will be, have your clients indicated?A: Right now at least with few clients, I wouldn't say across the segment, we see the shift being a 90 day, 120 day type of shift.Latha: That is two quarters away?A: Yes.Sonia: I didn't read about any reference to the volume growth. Can you give us some colour on that because on organic basis your volumes had declined last quarter by about 1.8 percent? How much of a decline would you expect because of the issues you alluded to next quarter?A: To take a context, Q3 volume growth gets impacted by the holidays as well as the additional leave which people take. Last quarter the volume growth was impacted 2.4 percent because of incremental leave and about 0.8 percent because of the additional holidays. So some of those factors wouldn't certainly be there but the start in terms of delays, if you go back to our Q3, we had build capacity in the context of what we anticipated, will be the projects and start early in the calendar year - that has got shifted, so that will probably continue in terms of volume growth. I don't have a number in terms of volume growth but Q3 would have been slightly more a one-off because of both the incremental leave as well as additional holidays.Latha: What is a seasonally adjusted volume growth that you normally do in Q4?A: I think it is between 1-2 percent. Sonia: You had won about USD 204 million worth of deals in Q3 and your year-to-date deal wins stand at about USD 605 million. Can you give us the update so far in this quarter gone by, what have the deal wins been approximately how much could the growth be on the base of USD 605 million?A: Except these two segments, the deal wins still continue to be strong which is why what we anticipate is FY16, this financial year on a reported basis we will still be well ahead of NASSCOM's guided reported number of 10.3 percent for the industry and as you look at the funnel, we will be certainly over or exceeding the NASSCOM guidance of 10-12 percent for FY17.