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Mindtree Expects Double-Digit Growth For Next Few Years

Mindtree CEO Rostow  Ravanan said that the next fiscal’s growth will be equal or better than the current fiscal.

Mindtree logo sits on one of its campus in Bengaluru, India(Phorographer: Nishant Sharma/BloombergQuint)
Mindtree logo sits on one of its campus in Bengaluru, India(Phorographer: Nishant Sharma/BloombergQuint)

Midcap IT firm Mindtree Ltd. is confident of continued margin improvement, driven by strong growth prospects for its digital vertical.

"We are doing everything possible to touch 17-18 percent in margin levels in the next two-three years," Chief Executive Officer Rostow Ravanan told BloombergQuint in an interview, adding that the company is extremely conscious that its margins are below its comfort levels.

The Bengaluru-based firm's margin rose to 12 percent in Dec. quarter, from 8.2 percent on a sequential basis. The next financial year’s growth will be equal or better than the current fiscal, Ravanan said. "The only possible risk could be the rise in geopolitical tensions."

Watch the interview

Here are the edited excerpts from the conversation:

Will the growth that companies like Mindtree will see in FY19 would be a result of a much lower base or is business sentiments looking so sharp that strong growth in FY20 could accompany robust growth number in FY19. Is it possible to view that far currently?

Of course yes. I feel very excited about the prospects of Mindtree, even over the medium term like 3-5-year period. What we are building as a franchise is resonating very strongly with customers. We continue to attract world-class talent and delivering high impact to society and businesses. So, I think, all other factors are working in our favour.

The only risk is when something happens with geopolitical like terrorism or any those kind of macro events which could derail our story at this moment. But barring that kind of systemic events, we are very bullish on our business from a growth perspective.

In our businesses, growth is the biggest driver for margins. If we continue to execute smartly on growth, then it should lead to some smart improvements in margins for us. So, I am very confident on both fronts for our own business.

Are you saying that at this stance, after 11-14 percent growth that you as a company will clock in FY19, there is a strong possibility of double-digit growth which will accompany that in FY20 or beyond?

Absolutely. We see a trend where our growth will accelerate. The core strengths of Mindtree are solid. We got hit by client-specific challenges in FY16 and FY17. Much of that is behind us. So, the absence of the drag, as well as the tailwinds that customers are giving us, should stand in good stead even for next 3-4 years. Whatever growth we see in FY18, in FY19 it will be equal or better. That accelerating growth we see over the medium term.

Would you be an isolated case, or you believe that the industry will to show similar trends?

At a macro level, yes. If you see the amount of technology pervading all industries, whether you have hotel, hospital or airline, every customer now thinks of themselves as a technology business. Which means, service providers like us will get a lot of growth.

At a company-specific level, it depends on strategy or execution. On individual organisation level, somebody may do better or little worst. But for a sector as a whole and the talent in the industry, I am confident that there is an enormous amount of opportunity.

The common refrain from people who track this space is that large-cap IT, which is running the large portion of the bread and butter traditional outsourcing business remains large proportion of their P&L and balance sheets and might not be able to grow at a similar pace which small and mid-cap IT would because maybe they are more nimble. Or perhaps significant proportion of revenue comes in from new age technology as opposed to traditional outsourcing. Is that assumption correct? Is that changing materially for large cap IT as well?

In my personal opinion, I don’t think that assumption will hold good. If you look at earlier times in history, Charles Darwin’s actual prediction was that those who adapt faster would survive at times and change will hit. It was evident that he spoke from the biology standpoint. But you see it from the business standpoint too. It will be less about large versus small.

A few of the players react to trends reasonably quick. They are very close to their customers. They have brilliant talent within their organisation. Those who are nimble and adapt faster will continue to do well. There are those who don’t have those qualities and those are the ones who will suffer. You will see significant and mid some doing well and some not doing well.

To reduce the number of outsourcing will take some time for a nimble large company too. Isn’t that true? Are you saying that the traditional outsourcing will see growth which is good enough to accompany the growth which comes in new age digital verticals?

My lens is showing me a multi-varied equation and not a single or dual variable comparison. Even if you look at some of the large companies, few have enormous amount of resources, made a lot of essential strategy bets and therefore are in continuously growing boats of the traditional portfolio and new business models and technologies. So, all of us will continue to do something like that. Those of us who get that formula right will do well.

Secondly, there are a lot of market share that the nimble companies can also get on both parts of a portfolio from those who are underperforming. This is the marketplace which is rich with opportunities. Therefore, the actual success will be the choice of strategy and commitment and execution of that strategy.

Is there a realistic chance of the numbers on operating margin fronts to move into newer orbits northward of 17-18 percent sustainably for next 5-7 years? Or is it difficult to predict that right now?

As a management team, are extremely conscious of margins of below our comfort level right now. Part of it is occasionally execution missteps in Mindtree and sometimes external factors which have led us to wherewe are. We are continuously doing everything to grow our margins.

So, getting back to somewhere around 17-18 percent over the next 2-3 years is a priority. We are doing everything that is needing to do to get there, and we are confident that we will get there.