Despite Q1 setback, Mindtree mgmt aims to outperform industry

In the same interview Rostow Ravanan, MD and CEO of the company said that the company did not anticipate a sharp reduction in revenue from UK business.

However, overall performance for the whole year continues to be strong and Mindtree aims to deliver higher growth than the industry, he added.Below is the verbatim transcript of Krishnakumar Natarajan, Rostow Ravanan and Jagannathan Narasimhan’s interview with Rukmini Rao on CNBC-TV18. Q: What is your view on slowdown in the overall environment and also in IT and discretionary spends? Natarajan: I do see the macro environment as being challenging. Obviously, there is the Brexit which has happened which has impacted Europe a lot. While other environmental conditions are making people a little cautious, but I don’t see a slowdown in terms of overall demand scenario itself. I see the demand scenario has been quite optimistic. There is caution in the short-term but overall for the year I would still believe that the demand environment is fairly strong which is why we are very confident that for Mindtree it is going to be little back ended on growth which I presume is equally true for the industry itself. I don’t think there are any structural factors which are impacting demand. Q: Want to understand from you all the numbers that came out of course quite below the street expectations? This slowdown and what we saw in this quarter is this likely to fall out in quarter two as well what went wrong during the quarter that has gone by? Ravanan: I would say little bit of it would be because the up street had no way to analyse the impact for example of the IND-AS transition. This is the first quarter everybody is obviously grappling with it. Like you have seen so far different companies are being affected in different ways, so a little bit of the gap compared to expectations could have just been that some of the assumptions are evolving there. From our point of view, I think the only I would say news that came during the course of the quarter meaning that we didn’t anticipate in the beginning of the quarter our was the sharp reduction revenue in the SAP HANA business that we bought in the UK and consequently obviously that business gone from a profit to a loss. So, slowdown in revenue of a relatively small business immediately obviously pushes into a loss. So, probably was the only piece which was in a sense new news. Like we explained in the beginning of the quarter we did say that this year will see volatility between quarters. However, the year as a whole continuous to be strong. Like we have done in the last three or four years this year also we will execute to deliver higher growth than the industry. Q: If you can also elaborate on what impacted the margins and also if you can give us the sense of what is happening on the price realisation front and also the volume growth? Narasimhan: Margin for the quarter had an impact of visa fees which had about 1 percent impact and operational parameters had some 80 basis point impact in our profitability. Currency had 20 basis point impact on our profitability. This 80 basis point is mainly because of profitability of Bluefin where revenue drop could not absorb the cost so they ended up in reporting a loss for this quarter. We see this is a temporary phenomenon with the revenue growth coming back in Bluefin. They will be able to get to the profitability level in the next quarter. Next quarter we have a salary increase coming in for all Mindtree mines which will have about 2 percent impact in our margin. However, visa fees will not be there which will benefit us by about 1 percentage. We will focus on improvement of profitability with the acquired entities and also the operational parameters which we are confident of holding the margin at the current level for next quarter. Q: Give us the sense of what the deal pipeline is looking for the next quarters and in terms of the revenue ramp up how is that looking like for this coming two quarters? Ravanan: Overall the deal pipeline looks very positive. Lots of contracts are coming in and lots of opportunities, lots of proposals both within the existing customers as well as new customers are relatively less worried about that. I think the more of the challenge is given that we spoke about the environment related issues people are not deciding as fast enough. Sometimes they say yes to our project but they start much slower those are the kind of things that we are seeing as an outcome of the uncertainty. It is not the quality of the pipeline or the size of the pipeline it is the velocity, closure or ramp ups that is what is worrying us at the moment. Q: Also in terms of your own margin outlook are you maintaining what you said would be the bandwidth that which Mindtree would be operating at or do you see that margins going ahead could be a little softer? Narasimhan: Going ahead the margins will not be softer it will improve in the coming quarters. In quarter two it will be at the same level what we had reported in quarter one. I am not considering the currency impact on the margin. However, from quarter three and quarter four we see a substantial improvement in the profitability which will help us to improve our profitability overall for the year.