MindTree to rejig wireless business, Q2 profit falls 52%

MindTree to rejig wireless business, Q2 profit falls 52%

Mumbai: Mid-sized information technology services firm MindTree Ltd is winding down its handets and 4G intellectual property business (IPR), its chief executive officer said on Tuesday, citing higher-than-expected capital expenditure.

The company had made an investment of $4.5 million (Rs20 crore) into the business over the first two quarters of the fiscal year.

“We had good traction in the market but we realised this is a business that requires substantial capital infusion", Krishnakumar Natarajan said.

Bangalore-based Mindtree plans to convert the handset and 4G long-term evolution IPR business into providing research and development services to network infrastructure and handset firms. The transition would be completed by the end of the third quarter, Natarajan said.

It had acquired Kyocera’s India R&D centre in October 2009 to work on IPR in the 4G wireless long-term evolution wireless infrastructure as well as a 3G smartphone.

MindTree had planned the launch of a 3G smartphone based on Google Inc’s Android platform in the US in the second half of the current financial year.

Shashi Bhushan, a senior research analyst with brokerage Prabhudas Lilladher Pvt. Ltd said operationally MindTree’s revenue growth and demand looked good, but the restructuring of the wireless business might turn out to be costlier than anticipated the bottomline.

The company’s consolidated net profit for the July-September quarter fell 53.4% year-on-year to Rs23.3 crore, despite a 22% rise in revenue to Rs384.4 crore, it said on Tuesday. A Reuters poll of brokerages had forecast MindTree to earn Rs27.68 crore on a revenue of Rs375 crore.

Profit fell due to investments in the products business and wage hikes in April and July, Natarajan said. EBITDA margins dropped to 11.7% from 20.9% in the year-ago period.

Natarajan expects margins to improve on a sequential basis. MindTree has recommended an interim dividend of 12.5%.

Its shares, which have shed 16.4% in the last six months, closed up 4% at Rs534.45 rupees on the Bombay Stock Exchange on Monday, while the benchmark Sensex fell 0.92% to 19,983.13 points.

Mint’s Sridhar K. Chari in Bangalore contributed to this story.