Bengaluru: Mindtree Ltd reported poor revenue growth in the first quarter, missing analysts estimates, as the software services exporter became the third technology outsourcing firm after Tata Consultancy Services Ltd and Infosys Ltd to start the fiscal year on a weak note.
Mindtree’s dollar revenue improved 2% sequentially to $199 million, while in rupee terms, revenue inched up 0.6% to Rs.1,327.6 crore in the quarter ended 30 June. Net profit declined 5.8% from the preceding March quarter to $18.5 million, while in rupee terms profit fell 7.2% to Rs.123.5 crore.
A Bloomberg survey of 23 analysts had forecast revenue of $201.51 million, or Rs.1,352.4 crore, for the quarter. The analysts estimated Mindtree would report a net profit of $23.51 million, or Rs.157.6 crore.
Bengaluru-based Mindtree started the last fiscal year with strong sequential growth of 5.5% in April-June 2015, helping the firm grow 22.5% to $715.20 million in revenue at the end of 2015-16 from a year earlier.
“We had a few client-specific issues in this quarter and on account of slow project ramp-ups but we expect the revenue to come back in the second half of the year,” Mindtree chief executive officer Rostow Ravanan said in a post-earnings call with analysts. Still, Ravanan, who was chief financial officer before taking over as CEO in April, maintained that the company should trump industry body Nasscom’s projected growth rate of 10-12% in constant currency terms for the current fiscal year.
Last week, Tata Consultancy Services Ltd (TCS) reported a 3.7% sequential dollar revenue growth in the April-June period, marginally ahead of street expectations, while Infosys Ltd shocked investors with a poor revenue growth of 2.2%, leading investors to dump shares of the Bengaluru-based firm.
Bluefin Solutions, the UK-based firm bought by Mindtree last year, saw about 10% sequential decline as the company’s revenue totalled $9.5 million in the first quarter.
Slow revenue generation from some of the large deals bagged by domestic technology firms last year seems to be one of overarching factors hurting revenue growth. This is put down to outsourcing contracts becoming more complex as they involve moving applications and integrating them on cloud computing platforms. The inability of home-grown information technology firms to offer solutions in cloud computing and mobility is another factor that has impacted revenue growth.
In contrast to Indian IT firms’ weak performance, Accenture Plc, the revenue of which exceeds that of TCS, Infosys and Wipro Ltd put together, reported a dollar revenue growth of 9% from a year earlier in its third quarter (March to May), signalling the firm’s early investments in strengthening offerings in the digital space have started to pay off. Despite home-grown technology firms’ claims of making investments in cloud computing and mobility platforms and also reskilling their workforce, the earnings performances reflect the fact that most are struggling to record higher growth.
Mindtree saw a 2.3% sequential growth in the banking, financial services and insurance space, which accounts for 24.9% of total revenue, even as travel and hospitality declined 8%.
“Management has said that they expect some growth in the second quarter, but demand to bounce back starting in the second half of the year as they expect weakness to abate in some clients. Still, it will need a really strong growth, 4% CAGR (compound annual growth rate) in the second half of the year, if the company expects to beat Nasscom’s 10-12% estimate,” said a Mumbai-based analyst at a domestic brokerage, who declined to be named.
Mindtree reported a 3.4% increase in business from the US, which accounts for 65% of total revenue, while Europe, which accounts for 23%, saw a 4% decline.
Mindtree was founded in 1999 and has 343 clients, with 16 of them bringing at least $10 million each. Employee headcount declined by 513 to 16,110 at the end of June from 16,623 at the end of the March quarter.