Mindtree has reported a robust 16.4 per cent sequential growth in revenues – way ahead of the market’s expectation of 13.1 per cent. Excluding recent acquisitions, the revenue growth is still a good 8.1 per cent.

Mindtree’s recent strides in the digital business have aided this performance.

The digital business as represented by SMAC applications grew 23 per cent (9.6 per cent excluding new acquisitions) sequentially, contributing 36.6 per cent to the revenue.

Average deal sizes in the digital space improved from $220,000 in the March quarter to $448,000 in the September quarter indicating that after testing out the new applications, clients are employing Mindtree in the execution of these projects too. This clearly shows confidence in Mindtree’s execution capabilities. In the recent quarter, of the new orders signed of $193 million, $105 million was in the digital space. This is up from $63 million in the March quarter.

In the June quarter, Mindtree acquired, Bluefin Solutions and Relational Solutions, both in the digital business. Bluefin Solutions is a UK company that specialises in SAP HANA (an ERP Solution) and provides analytics on transaction data on real time basis.

It has about 60 clients and 170 employees and can help Mindtree get greater reach in UK and also build capabilities in HANA that is central to solutions across cloud, analytics and mobility. This is important given that a large number of the current SAP customers will migrate to HANA in the next 18 months.

Though Bluefin’s margins are lower to that of Mindtree’s because of higher relative costs, the company believes that saving on some common overheads and shifting of some work offshore will help margins improve.

In the September quarter results, both Bluefin Solutions and Relational Solutions have been consolidated with Mindtree’s.

Given that the manufacturing space in both the US and Europe are witnessing a rough patch, companies offering traditional services can suffer as clients trim IT expenses in the next three-six months. But, Mindtree appears well placed to tackle the challenge. As digital applications help clients in understanding their market better through analysis of data or to improve revenue, digital spending of companies is likely to continue.

Margin concerns alleviate

From 20.5 per cent in the December 2014 quarter, margins declined to 17.6 per cent in the June quarter. This resulted in anxiety over the September quarter’s margin. However, despite salary hikes the company was able to show an improvement this quarter. Operating profit margins expanded by 80 basis points, thanks to improved operating efficiencies and cross-currency gains.

In the near term though investments on the digital platform may apply some pressure on margins, but as the company achieves scale, margins may improve.

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