After a disappointing March quarter, Mindtree put up decent show in the latest June quarter. Its revenue growth of 4.8 per cent (in dollar terms) came in better than market expectation of 4.1 per cent growth. The company delivered a volume growth of 6.4 per cent, led by the traction in BFSI, retail and manufacturing verticals.
Revenues from Discoverture Solutions — an insurance solutions provider in the US that was acquired by the company in January — also added fillip to revenues. In constant currency terms, the revenue growth was higher at 5.2 per cent. However, the company disappointed the market on the margin front. Operating margins that were expected to fall sequentially by 80 basis points reported a sharp 190 basis points decline and fell to 17.6 per cent in the June quarter. Despite a share of higher fixed price contracts (48.1 per cent of revenue in June quarter vs. 46.5 per cent of revenue in the March quarter) margins slipped on account of higher onsite revenues (47.1 per cent vs. 45.8 per cent) and headwinds from higher visa cost and increase in investments in the digital platforms. Realisations also took a knock and fell by 1.5 per cent, mostly due to cross currency impacts.
The utilisation rate, however, improved marginally to 71.9 per cent from 71.1 per cent in the previous quarter. Gross additions dropped to 900 from 1,517 in the March quarter and attrition went up from 18.2 per cent to 18.4 per cent during the June quarter.
Margins to be under pressureMindtree indicated that margins are likely to be under stress in the second quarter as well, on account of wage hikes for both offsite and onsite employees. Higher spends on the digital business may also impact margins. During the June quarter, it acquired Bluefin Solutions, a UK-based IT solutions major with large clients. This should boost revenues from digital business. But, since BlueFin’s margins are lower than Mindtree’s, there is likely to be some margin stress going ahead.