Wage hike will impact margins next quarter: Geometric

IT player Geometric is likley to see weak growth in Q2 and Q3, says MD & CEO Manu Parpia. Speaking to CNBC-TV18 about the financial performance of the company he says, the wage hike which was announced in July will also impact its margins going ahead.

The company’s first quarter consolidated net profit grew by 38.7 percent (down 25.5 percent year-on-year) quarter-on-quarter to Rs 15.4 crore. Below is the verbatim transcript of Manu Parpia's interview on CNBC-TV18 Q: What about the slowdown in your topline performance, your revenue growth has come at 1.5 percent? Do you think you can bounce back to 2-4 percent growth levels guided earlier?
A: There are two parts; firstly, there has been a definite slowdown due to our largest customer experiencing over and above whatever slowdown we had anticipated. We could not see visibility beyond Q1 and unfortunately that part has come true. Secondly, we had clearly indicated that Q2 and Q3 will not be strong, in fact it is going to be weak. Therefore, we know the revenue from this customer is going to affect. Q: If Q2 and Q3 will be weak, do you see that trickle down into your margin performance too? This time around you have managed to do 19 percent, but what kind of sustainable run rate will you maintain on the margin performance?
A: There will be an impact on the margins due to two reasons. One, we have hiked the salary effective July 01 so there will be impact of salary increase. Two, if any impact on revenue run rate is effective then it will impact margin. We have taken steps to minimise that impact, but it would be foolish to say that there will be no impact. Q: What will be your new guidance? If your quarterly growth guidance is 2-4 percent, what is the new guidance?
A: I never said that 2-4 percent quarterly growth guidance, I said in the first quarter the growth will be 2-4 percent. Also, I am not in a position to give any guidance because I know that we are faced with a situation where there will be a substantial decline in volume. We anticipate from one of our larger customers, so I don’t want to enter in a guidance and all as that is not very productive. Q: Will the contraction in guidance be restricted to 1 percent?
A: I really do not see. We are not going to sit here and say that we are going to do nothing and we don’t see a way out of it. That is not true. I have been very clear and we have identified are next steps and what steps we are taking to return back the growth. On the other hand it will be premature to give any figures just now. Q: Majority of IT companies have surprised on the upside. Your unfortunate position is because one client has chosen to reduce his cost orders. What is the sense you are getting if the order position improves and will it be possible for you to replace this one disadvantage?
A: Yes. We are in a position to replace and in a way this over dependence on one client will play out over the next couple of quarters. It is giving us more drive, the ability to make change and move into a different direction. Yes, I see the way out. Q: You have increased the salary, will they hit in the current quarter?
A: They will. We have made them effective July 01.