NIIT Technologies first-quarter earnings were below estimates, primarily on account of weakness with two client accounts belonging to the banking, financial services and insurance (BFSI) sector in the US, as well as some local government contracts coming to an end, chairman Rajendra Pawar said.
The software firm's first quarter net profit fell 30.2 percent to Rs 43.2 crore this quarter, compared to street estimates of Rs 52.3 crore.
Also read: NIIT Tech Q1 profit falls 30%, growth to pick up in H2FY15
"But order intake has been healthy at Rs 124 million as it has in the last few quarters so that is a positive," Pawar told CNBC-TV18's Reema Tendulkar and Nigel D'Souza in an interview.
"So we do look at the second half of the year picking up."
Below is the transcript of Rajendra S Pawar's interview with CNBC-TV18.
Reema: You have indicated that growth this quarter was impacted on account of two BFSI clients in the US. Can you tell us on the back of that how much did it impact your revenues and going ahead do you expect this weakness to continue in these two particular clients?
A: There will be ways to cover up but it will not get any worse. The customers had a few internal issues so that has had an impact. So that is one part of the exercise. But we have to remember that last year this time we also had some large government projects in India getting executed, that was not so this year, they are getting exhausted so that also caused a little bit of impact.
But order intake has been healthy at Rs 124 million as it has in the last few quarters so that is a positive. Also we track order executable over the next 12 months and that has gone up from Rs 290 million last quarter to Rs 295 million.
So we do look at the second half of the year picking up, the gap that has happened or picking up pace.
Reema: Tell us about these two clients, what was the impact on the back of both these clients ramping down?
A: We cannot disclose the customer specific information but it is not that significant. As I said part of it is also coming because same time last year we had the execution of large government orders in India. So when you compare over the period there is a gap coming from there as well.
So that is the normal course of business but we did expect these two particular contracts, the customers had their own situations which were unexpected for us so that has pushed back growth a little.
Reema: And they will continue even in the next few quarters?
A: No the business will continue, we don't expect the same pushback which they have had as a one-time change in their own operations. And then of course we expect others to come in, we have added four clients this quarter, we have a good addition in this quarter. So things have to fill in the gap as we go forward.
Nigel: On your other income, you have said that primarily is because of rupee depreciation so what rate have you taken the rupee at? Also what was your tax rate for the quarter, on a quarter on quarter basis we are watching out for that because the last quarter it was sub 10 percent odd?
A: On tax, it was around 7 percent last quarter because of some deferred tax asset benefits. This year it has come back to about 26 percent, which is the norm. So that has been a significant difference and also the other income figure last year because of the depreciation was significant.
So those have been to exchange-related issues and tax-related matters and the other incomes which have made a difference and therefore impacted the PAT.
Reema: Your margins have fallen by about 170 bps on a quarter on quarter basis. Can you tell us what the breakup of this margin pressure: how much on account of wages, rupee appreciation, any productivity benefits?
A: Wage has actually had a big impact which we would have expected to have covered up had the revenue difference not happened. So wage has been 8 percent increase for offshore that is in India and 3 percent onsite. So a lot of it actually comes through which we would have expected had the revenue growth been okay. So actually mathematically it comes to that amount.
Nigel: With regard to your margins going ahead, we expected some kind of improvement, some kind of stabilisation around that 14 percent odd, currently we are sub 13.5 percent so do you see this second half being better, can we see the margins move back towards 14.5-15 percent, what is your confidence on that front?
A: Yes second half it will be significantly up in that region. Second half we will see growth as well as margins improve.
Reema: Last time you indicated that the order pipeline is up 25 percent, even the order book executable is up about 15 percent, if you look at it in dollar terms on year-on-year basis this quarter can you tell us the order pipeline, how much is it up on year-on-year basis?
A: Last quarter the orders executable over 12 months were 290, that is up to 295. Same quarter last year was 263 or 264. So that situation is there, now it has to get executed and the setback gets in the way of converting what is executable in an estimated 12 months period which is why we are saying that the second half we had to catch-up, the trend is appropriate and positive.
Reema: And the order pipeline?
A: Pipeline is looking good. I don't have the figure but if you recall we have been talking about significant efforts going into strengthen the sales. We have made changes in the organisation so that is also a positive. So pipeline is going up, we expect that to play out as we go forward. Headcount on sales has also gone up so that improvement is continuing quite steadily and in a predictable fashion.
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