Mindtree profit surges on IT services business growth

Mid-tier services firm MindTree Ltd on Wednesday reported an April-June net profit that outpaced analysts' expectations, helped by a 40% jump in revenue from IT services.

The company, which has 283 active customers, also maintained its operational (EBITDA) margins at 11.2%, compared with 11.3% in the previous quarter, despite wage hikes and appreciation of the rupee.

"Our strong revenue momentum and increased operational efficiency mitigated margin headwinds," Chief Financial Officer Rostow Ravanan told reporters on a conference call.

About 76% of MindTree's employees got a wage hike effective April 1 this year. The company doled out hikes of about 10-12% for offshore and 2-3% for on-site employees, Ravanan said, adding the wage hikes coupled with the rupee appreciation dented margins by 3.8%.

However, Chief Executive Krishnakumar Natarajan said though margins are expected to grow going forward, expansion would be muted in the second quarter as some new hires get absorbed and a few more employees receive wage hikes.

Earlier in the day, larger peer Wipro, India's No.3 software services exporter, forecast growth below market expectations, signalling the widening gap between Indian technology firms and their bigger global rivals in winning new deals in a tough economy.

"We have adopted a strategy to focus on a few segments and we see that starting to deliver results now, but visibility in the next few quarters with the macroeconomic issues seems blurred," Natarajan said. "It will be difficult to sustain another 7.3% quarter-on-quarter growth."

The Bangalore-based company reported a consolidated net profit of Rs 34.5 crore compared with Rs 15.9 crore a year ago, while a Reuters poll of brokerages had forecast profit of Rs 24.45 crore.

"It's a very strong set of numbers and really sets a good pace for the entire year," Angel Broking analyst Srishti Anand said. "Clearly the degrowth we have been seeing for a year or so should stop and investor sentiment should improve gradually."

Last quarter, investors hammered the stock after the company's chairman and co-founder, Ashok Soota, resigned with an intention to start his own business venture. Soota, who had co-founded MindTree in August 2009, last month halved his stake in the firm by selling 5.5% in the firm through a block deal.

MindTree's stock has lost 36% of its value so far this year, while the NSE IT index fell 15.5%.

Shares of the company ended up 1.1% at Rs 359.60 in a weak Mumbai market on Wednesday.