'We have hedged about 44% of our revenues'

MindTree, the Bangalore-headquartered IT services company created history last year by becoming the first listed Indian IT firm to acquire another listed Indian company, Aztecsoft.

The June quarter turned sour for MindTree as forex losses pushed the company into the red despite logging strong growth in revenues.

Krishnakumar Natarajan, CEO and co-founder of the company, spoke to Business Standard about the company's financial performance and growth areas. Excerpts:

What went wrong with the June quarter performance?

This year, we adopted the AS-30 accounting standard, the Institute of Chartered Accountants of India guidelines for companies taking up hedges.

We have adopted this standard from April 1, which mandates us to make mark-to-market provisions for hedging our foreign exchange receiveables.

The new accounting norms have impacted our bottom line. But the provisions are more of a notional loss that can be reversed as the currency movement changes.

How much have you hedged for the coming quarters?

We have hedged only 44 per cent of our revenue. If the rupee continues to depreciate, we will lose out, but the unhedged revenue will help us offset the hedging losses.

How you would rate your performance in the June quarter?

We rate our business in terms of growth in EBIDTA (earnings before interest, depreciation, taxation and amortisation). Our EBIDTA in the June quarter was about 20.89 per cent as against 18.8 per cent in the fourth quarter of FY08.

So if you see the EBIDTA growth alone, its is almost a 78 per cent rise year-on-year and is almost a 15 per cent growth over the last quarter. So the operating business is certainly strong, both on the basis of volume growth and better utilisation.

What about the effect of a global slowdown?

In a market growing at a lower pace, people sometimes believe that there will be pressure on pricing. We do not seeing any pressure on this front.

We expect pricing to be very stable. The slowdown is also good in some way for many of us.

Are your clients asking for a cut in pricing?

Thankfully, our clients have really not approached us in this regard. There is no such pressure to slash prices. Now with pressure on our clients to be more optimal on their budgets, companies are looking at increasing their outsourcing works.

What are your prospects in the European market?

The growth in Europe has been incremental over the last four quarters and it has shown a consistent upward trend. We improved our revenue share from Europe to 24.3 per cent this quarter from 19.2 per cent in the previous quarter.

Since we don't understand the language and culture there, we have adopted a unique model for Europe by partnering with local companies. For instance, we have been working with Getronics in the Netherlands for the last six years.

With your holding in Aztecsoft rising to about 81 per cent after the open offer, when will you completely integrate it?

Aztecsoft is the first major acquisition we have made. We are going to initiate a court-approved merger process soon. But practically for the whole of this financial year, Aztecsoft will continue to be an independent listed entity.