Mindtree profit falls after forex loss, reports strong pipeline

BANGALORE: Mindtree, a Bangalore-based mid-sized IT services provider, reported fiscal third-quarter profit fell 10.4%, after a foreign exchange loss.

Profit for the three months ended December fell to Rs 88.5 crore from Rs 98.8 crore in the year-earlier period, Mindtree, whose customers include Microsoft and Volvo AB, said in a statement to the Bombay Stock Exchange on Thursday.

Profit excluding foreign exchange loss was Rs 116 crore.

“We are seeing good business momentum and traction with our clients,” CEO Krishnakumar Natarajan said in the statement. Mindtree had a strong deal pipeline, Natarajan added.

Sales in dollar terms rose to $127.1 million, a 2.5 percent increase over the previous quarter, in line with analysts expectations.

Despite large IT services firms like Infosys and HCL tech having reported a better-than-expected result riding on market and demand recovery, analysts expected mid-tier IT firm Mindtree to report moderate growth of 2.5% -3% and a decline in the margins for the third quarter.

According to analysts, Mindtree was expected to face weak seasonality and currency impact that would lead to slower growth compared to previous two quarters.

“MindTree’s revenue growth should slow on seasonality,” said Kuldeep Kaul, equity analyst at ICICI Securities in a note to the clients.

Kaul expected Mindtree’s December quarter growth to slow to around 3% sequentially, compared with the 5.4% and 4.1% growth as reported in the prior two quarters.

However, given the strong deal momentum analysts expect it to perform better in the coming fiscal year that ends March 2015. “We model revenue growth of 15.2% in FY14 and 17% in FY15,” Kaul added.

During the third quarter ended December 31, 2013, the company announced wage hikes to almost 20% of its senior employees, and according to analyst estimates, this could impact the profitability. Also factoring in lateral hiring announcements, margins could suffer by 100-150 basis points.

“Margins will decline due to wage compensation revision, fresh hiring and volume weakness due to seasonality,” Mumbai brokerage Kotak Institutional equities had said in a note ahead of the results.

Bangalore-based Mindtree recently hired Paul Gottsegen from Infosys to lead its marketing effort, Ramesh Pillai to head its hi-tech industry vertical and Mark Wilsdon to lead its sales for Europe.