The impact of economic recession and exchange rate volatility is clearly visible in case of Mindtree’s quarterly result. The company reported a
decline of 4.7% in dollar-denominated revenue on a standalone basis. On a consolidated
basis, it registered a growth rate of 3.6% in dollar revenue, thanks to its Aztecsoft acquisition. The India growth story is clearly visible in case of Mindtree. The dollar revenue from India grew at around 28% quarter-on-quarter, far higher than any other geography.
The dollar revenue from US, from where the company gets around 60% of its revenue and also independent of cross-currency impact declined by 4% on a standalone basis. But the good growth contribution from Aztecsost pushed consolidated dollar revenue from US up by 7.8% (Q-o-Q). Another interesting trend visible was the sharp decline of around 28% in dollar revenue from Asia Pacific Region which can’t be justified by currency depreciation alone. Contrary to the many IT companies, Mindtree reported a superb growth rate of around 34% (Q-o-Q) from automotive and industrial system industry.
However, to offset the impact of lower revenue growth, like many other IT companies, it reduced its operational expenses drastically. The personnel cost and travel expenses declined by 18.3% and 14.5% respectively compared to the preceding quarter. This resulted in around 300 basis points expansion in consolidated operating margin.
But the real mayhem came in terms of foreign exchange loss which wiped out almost all of the operating profit. Mindtree alone suffered a foreign exchange loss of Rs66.6 crore. More than two-third of this is in the form of mark-to-market losses. Considering the huge exchange losses in last three quarters, the company has decided to change its hedging policy. Going forward, the company will hedge only those contract revenues which are classified as hedge under accounting rules and second, it will only hedge for 12 months of revenue in contrast to 48 months seen in March, 2008.
As a result of such huge foreign exchange loss, the net profit became less than one-fourth of what it was in the Sep ’08 quarter.