Expect margins to improve; relook forex policy: Geometric

Manu Parpia, MD & CEO, Geometric, says that structural changes and some payment provisioning has lead to the improvement in margins. We expect our margins to improve because of the efforts that we have put in.

He also believes that the engineering space is very open and companies are looking at restructuring and relooking at the way they do engineering work throughout the world. So I see many opportunities and I believe that it is up to the company to grab these opportunities.
We need to take a relook at our foreign exchange hedging policy which we are already in the process of doing. The foreign exchange went plus on certain side, we got due to revaluation of our subsidiary and went minus on the fact that we have already hedged that about an average of around 48.8 for this quarter.
Below is the edited transcript of his interview to CNBC-TV18.
Q: What is the reason for your margin improvement?
A: Two factors can be attributed for the improvement in margin, one is the structural changes that we have carried out by appointing a management consultancy firm to help us identify areas where we can improve, which is kicking off and secondly, the provisions which we have made for one time payment of bonus and variable payout. Some of those got reversed this quarter, which is natural.
Q: Going forward do you expect margins to dip once again once those extra consultant fees kick in?
A: No, the consultant fees will come to an end in this current quarter. So going into the next half, there will be no more consulting fees. We expect our margins to improve because of the efforts that we have put in. When I took over I said the focus of the management was to improve margins. Obviously, in every quarter there will be some plus minuses.
Q: Last quarter your margins were 12%, and then it jumped to 17% in Q1. What is the reasonable amount of expectation an investor should have given some intra quarter volatility?
A: Last quarter was a bit exceptional. I mentioned that we made a provision which was unexpected and long overdue activity. Going forward, I hope that the volatility will be reduced. Small companies are more sensitive to pluses and minuses. Small companies have to look at the trends and follow them. If you believe in the management and believe the trends are going in the right direction then ultimately there will be results.
Q: In the current quarter you had a 6% plus dollar revenue growth yet your full year guidance is only 16-18%. You don’t think you can do better than that for the full year?
A: At this stage of the game I would not like to venture further. Let us see how the year pans out and then we can see whether or not we should revise the guidance.
Q: What is the equation or the state of events in terms of Dassault Systèmes and what kind of order flow you are experiencing from there?
A: We see continuous and steady inflow of work in our joint venture and they are extremely satisfied with the activities of the joint venture. So it is very stable and growing in a moderate manner.
Q: What are you experiencing in terms of new deal flow because some of your larger peers have been showing very disparate kind of deal flow over the last couple of quarters?
A: In terms of deal flows, I believe that the engineering space is very open and companies are looking at restructuring and relooking at the way they do engineering work throughout the world. So I see many opportunities and I believe that it is up to the company to grab these opportunities.
Q: What are you doing in terms of forex fluctuations and being able to deal with it though this quarter has helped you out; it is a bit all over the place?
A: We need to take a relook at our foreign exchange hedging policy which we are already in the process of doing. The foreign exchange went plus on certain side, we got due to revaluation of our subsidiary and went minus on the fact that we have already hedged that about an average of around 48.8 for this quarter. So, obviously that part hit the bottom-line. We never anticipated such a wide fluctuation of the rupee. So we need to relook at our hedging policy. In the last three months we have not done anything fresh hedging.