Q1 Results: Mindtree’s Profit Halves, Margin Narrows On Wage Hike

Mindtree Ltd.’s profit for the June quarter halved and results missed estimates as its margin narrowed owing to increased employee costs.

Net profit in the June quarter fell 53 percent sequentially to Rs 92.7 crore, Mindtree said in an exchange filing. Analysts tracked by Bloomberg had forecast the profit at Rs 174 crore for the quarter.

The Bengaluru-based company’s revenue for the quarter remained flat at Rs 1,834 crore, 0.3 percent lower compared to the quarter ended March 30. This was in line with the Rs 1,842-crore estimate of analysts tracked by Bloomberg.

Operating profit was down 31 percent to Rs 193 crore for the June quarter on a sequential basis while the operating margin contracted 480 basis points to 10.4 percent.

Margins of the firm took a one-off hit worth 220 basis points in the quarter due to special payment to its employees to mark the company’s 20th anniversary. Mindtree said 190 basis points worth of margin dip was due to its planned wage hikes. Employee costs were up 9 percent on a quarterly basis to Rs 1,253 crore, it said. Other factors which contributed to the fall in margin include higher visa costs, and foreign exchange headwinds due to a stronger rupee.

Mindtree has delivered stable results in the face of many uncertainties, reflecting its unique strengths, outgoing Chief Executive Officer and Managing Director Rostow Ravanan said.

“While the external factors pose some challenges, nonetheless our focused strategy and strong client relationships make us confident of delivering above industry growth rates in FY20 as well,” Ravanan said.

Earlier this month, Larsen & Toubro Ltd. was categorised as a promoter of Mindtree, after it executed its hostile takeover to acquire a 60.06 percent stake in the company. Mindtree co-founders and board members—Chairman Krishnakumar Natarajan, Chief Executive Officer Rostow Ravanan and Vice Chairman Parthasarathy NS—quit the company soon after in July.

Mindtree Q1 Results Highlights:

• Dollar revenue was up 0.8 percent sequentially to $264.2 million.
• Digital service revenue now contributes nearly 40 percent to total revenue.
• Operating margin for the technology and media sector plunged 9.1 percentage points to 12.3 percent sequentially.
• Travel and hospitality segment weakened, with margin falling 680 basis points to 6 percent over the quarter.

On Wednesday, Mindtree shares rose 0.35 percent to Rs 751.95 apiece on the BSE while the benchmark Sensex gained 0.22 percent to end the day at 39,215.64 points. The Mindtree June quarter results were announced after market hours.