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Medium to long-term growth trajectory unchanged: Mindtree

Mid cap IT outsourcer  Mindtree expects flat organic constant currency revenue growth quarter-on-quarter (Q-o-Q) which is a downgrade from its earlier guidance of better growth in Q4 than Q3. Speaking to CNBC-TV18, CFO Rostow Ravanan said the cross currency this quarter may be higher than expected. Also, two customers in retail segment delayed projects which may impact the growth this quarter. However, medium to long-term growth trajectory remains unchanged.

The company expects delayed projects to restart by April-May.

Below is verbatim transcript of the interview:

Q: In January the management had indicated that the organic revenue growth in Q4 will be better than Q3 on a constant currency basis. Now, two days back, in your investor meet, you said that you expect the organic constant currency revenue growth to be flat on a quarter-on-quarter (Q-o-Q) basis which means that in a way, you have downgraded your assessment of growth. What were the key reasons?

A: Absolutely, so I’d like to start by re-iterating the fundamental medium-term to long-term growth trajectory, strategy, organisational readiness, none of those changes. On a very tactical short-term basis, we got impacted by two things; the cross currency impact in this quarter is turning out to be even higher than what we anticipated in the beginning of the quarter.

Secondly, two customers in the retail sector delayed to project starts in two cases, neither of which was for Budget or financial reasons, it is just that our project was following a cycle of development at their end and since the steps before us got delayed, our projects also got delayed and that led to the changed picture that we are seeing for this quarter.

Q: Can you tell us a bit more about these clients? What is the size of the projects? When could it restart?

A: The projects would start between April and May. It’s just that the activities preceding our project start are getting delayed at the customer end. So, we expect that to get completed maybe in the next 4-6 weeks. So, in April or May, we expect to be able to start our work.

Q: What was the revenue short-fall on account of the delays in these two projects?

A: Since we don’t give a numerical guidance, we didn’t quantify that. It’s just that picture changed and that is why we have updated the financial investor community as soon as we were able to come up with the update.

Q: Any other projects from these two clients which are likely to be delayed or any other project delays at all?

A: Not at the moment. The work we do with these customers as well as other customers are largely on track which is why this year, we will again beat the Indian IT Industry at growth averages for this year and we expect to maintain a similar trajectory even over the next two or three years.

Q: I’m going back to conversation we last had. You at that time told us that you haven’t seen any negative signs with respect to the client budgets for next year from your top-30 clients. But at that time, budgets were getting finalised. I’m sure by now, the budgets are finalised, so how do they stand? How would you say they compare with last year?

A: Increasingly, a large number of our clients have completed their planning phases. I think the happy aspect for us is that their budgets priorities are aligned with our sweet spots. Especially around the area of digital technologies, which is where we have already had a good lead and we are capitalising further on that. So that seems to be our priority for most consumer facing businesses, whether it is travel, hospitality or retail. In many of those industries, clients’ budget priorities are aligned to our sweet spots.

Q: I know you don’t want to give forward-looking guidance, but will FY16 be better than FY15?

A: That’s the general impression. These two only make a quarter-to-quarter impact. On a full-year basis, these two incidents may not make a big impact. Like we said, the industry as a whole is projecting a slower growth for FY16 compared to FY15. However, we still believe that we should continue to do well.

Q: How are deal wins tracking this year compared to the previous quarter?

A: So far, tracking a little slower, but that’s also because customer budget priorities got frozen somewhere in the middle of this quarter. No major concern area, but I think it’ll start picking up momentum in the April quarter.

Q: What would be in constant currency terms, the margins that we could look out for in FY16?

A: I think we should be a flat, maybe marginally a little better as well because we will grow and scale does bring some benefits. There are always investment priorities as well. The areas where we are seeing maximum growth opportunities, we’ll invest behind those opportunities as well. So, it’ll probably be between maintaining margins or maybe a small improvement.

Q: Very recently, the company acquired Discoverture, any other acquisitions that the company is considering in any particular area?

A: Not at the moment. But acquisitions are difficult to plan. As and when anything happens, we’ll proactively share the information with the investment community.

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