Mid-sized firms brace for rough ride

Our Bureau Bangalore | Updated on March 12, 2018


NIIT Tech Q2 results fall below estimates; Mindtree worries over sluggish outsourcing

Mid-sized companies in the country are beginning to feel the impact of continued delay in decision-making at large corporates in developed economies.

Bangalore-based Mindtree sees concerns in some of its verticals like engineering, travel and telecom due to sluggish outsourcing spends. Similarly, NIIT Technologies said that the environment continues to be challenging and is still uncertain for the information technology (IT) industry. It would continue for a while, a top official said.

“The trouble area is the Euro Zone. That depends upon the European leadership – they have to come up with how to solve the crisis. It will take time as it is a political issue as well,” Arvind Thakur, Chief Executive Officer, NIIT Technologies, told Business Line.

Analysts were not impressed by the performance of NIIT Technologies. “Numbers were below our estimates in a quarter which is seasonally the best quarter for the company with its Geographic Information System (GIS) and Insurance IP (Intellectual Property) businesses peaking in September 2012 quarter,” said Vimal Gohil, Analyst, Asit C. Mehta Investments Intermediates.

Infosys performance

This comes in the backdrop of three quarters of uninspiring numbers reported by Infosys. For Mindtree, the fall in net profits, of Rs 41 crore, was attributed to a forex loss but the commentary by its management on the delay in decision making in sectors such as travel and slowdown in other verticals such as engineering services is a cause for concern, say analysts.

Sensing more uncertainties in the global economic environment, the company also made changes to its board. Anjan Lahiri, President, IT Services, assumes the role of Additional Director, and N.S. Parthasarathy, President and Chief Operating Officer (COO), will be an alternate Director to S. Janakiraman, who heads R&D Services. Subroto Bagchi, Chairman, Mindtree, said that these appointments were made keeping in mind strong contributions made by these individuals and will bring a strong customer and employee connect.

There are enduring questions on margin pressures faced by both top and mid-tier companies. Despite seeing improvement in its margins, NIIT has been operating on lower operating margins of around 17 per cent compared to some of its peers who have margins in the range of 20-25 per cent.

Mindtree however maintained that it is seeing stable margins and sees a fine pipeline of deals going forward. “We expect margins to be stable in the second half of the financial year,” Mindtree CFO Rostov Ravanan told Business Line. “Operating margins surprised positively with EBITDA growing by 125 basis points over the previous quarter to 22.1 per cent,” said Ankita Somani Research Analyst at Angel Broking. A basis point is 1/100th of a percentage and is used to measure differences between percentages.

Despite the uncertainty, on the hiring front, both companies will continue their campus recruitments for the current fiscal. Mindtree said that it will hire 1,000 from the campuses. Thakur said that NIIT will hire as and when required based on the business requirement without going into details of campus recruitments.

Both companies had average client additions. Mindtree added 11 customers and NIIT added 3 new clients in the quarter. Mindtree also announced that Microsoft is its largest client contributing about 8 per cent to its revenues.

For NIIT, travel and transport contributed 42 per cent revenue share, BFSI and manufacturing contributed 33 and 6 per cent respectively to the overall revenue. The company secured fresh orders of $ 93 million during the quarter and there is an order book of $ 253 million executable over the next one year.



Published on October 16, 2012

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