Mindtree hit by project cancellations, slowing business to show lower Q2 revenue, profits

The IT firm had reported profit of Rs 123.5 crore on flattish revenues of Rs 1,327.6 crore in the quarter to June

Mid Tier services firm Mindtree Ltd will report lower revenues and profits than the April to June quarter as it sees customers cancel projects, slowing business ramp-up from key customers and expected losses in its UK subsidiary Bluefin due to slowing business.

Mindtree had reported profit of Rs 123.5 crore on flattish revenues of Rs 1,327.6 crore in the quarter to June. Margins calculated as sales minus expenses is expected to be lower in the quarter to September than the previous quarter

"Mindtree has implemented a range of operational efficiency improvements and cost control measures. The savings derived from these initiatives may not be sufficient to offset the revenue slowdown in Q2 FY17," the company said in its filing after market hours.

Mindtree stock had dropped to a 52-week low at Rs 546.25 during trading hours on the Bombay Stock Exchange on Friday, before closing 0.98% or Rs 5.45 lower to end at Rs 549.90.

Indian IT service firms are facing multiple challenges due to currency volatility, project cancellations and reducing contract sizes due to uncertain business environment over Britain's decision to exit the European Union. Infosys, the bellwether for IT services industry in July forecast lower growth than it expected in April, saw a key client shut down a project and sees business uncertainty continue from customers globally.

Mindtree said it expects margins to be higher in the six months from October than the previous two quarters due to cost cutting measures.

"The uncertainties in the Bluefin business are likely to continue for a few more months given the volatile macroeconomic environment in Europe," it said. "The slower revenue momentum in H1 FY17 will delay the aspiration to grow EBITDA margins over FY16. The cost saving measures and other related initiatives will help the company deliver a higher margin in H2 FY17 over H1 FY17. Even with this change in outlook, the company continues to expect its annual revenue growth to be higher than the Nasscom industry average."

Industry body Nasscom expects Indian IT services firms to grow 10-12% this year despite uncertain business environment.

Mindtree said that its business fundamentals, strategic direction and market positioning continue to look strong in the medium-term especially with its investments in Digital and Managed Services. "Business pipeline from its core services and Magnet 360 is amongst the strongest inthe last few years. The company is well-placed to win some of these opportunities, including some large ones to be awarded over the next few months," it said.