Directors' Report

Dear Shareholders,

Your Directors have pleasure in presenting their fourteenth annual report on the business and operations of your Company for the financial year ended March 31, 2013.

Financial Performance

Financial Performance

Global Economic & Business Environment

Global economy has been on a gradual recovery path with a GDP growth of around 3.3% during 2013 as against 3.2% in 2012, led by a strong US, easing EU and a stabilizing China. The inflation in the Euro zone eased due to slow growth and in the US, it was under control at 2% despite expansionary monetary policy with modest inflationary pressures in emerging economies. The unemployment in the US has been on a slow decline whereas, housing markets were on a rebound. Policy action in the US and EU has bolstered confidence that led the equity markets to a rally; and capital flows of emerging economies picked up again. There are strong earnings in the US S&P and Dow Companies and these indexes are approaching historic all-time highs.

Business Perspective

Current business and consumer sentiments are expected to improve in 2013 and therefore, global IT spending to accelerate during 2013. We are a global IT Services Company that engineers meaningful technology solutions to help businesses and societies flourish. We place significant emphasis on collaborative spirit, unrelenting dedication towards our customers, expert thinking and high standards of corporate governance. Our endeavor is to create success for our customers through innovative solutions delivered by happy people at workplace.

We have developed a comprehensive range of services allowing us to offer end-to-end IT Services to our clients. With delivery centers in India and overseas, we offer IT strategy consulting, application development and maintenance, data warehousing and business intelligence, package implementation, product architecture, design and engineering, embedded software, technical support, testing, infrastructure management services etc., to our customers. We believe that our comprehensive portfolio of service offerings helps our customers achieve their key business objectives.

Your Company received good traction for its services and its expertise in chosen segments & continues to hold it in good stead. Your Company has also re-aligned its processes, updated services, enhanced technology offerings, restructured the organization, upgraded brand image and continue to deliver superior value to its customers. Your Company today is much more focused and is executing better than a year ago.

Revenue for the year is Rs.23,618 million signifying a growth of 23.3% in Rupee terms. We had 232 active customers as at March 31, 2013 of which 74 accounts had revenues in excess of US$ 1 million.

EBITDA margins were at 20.6% as compared to 15.3% in the previous year. The main reason for the increase in EBITDA margins are rupee depreciation of about 14% (from Rs.47.57 to Rs.54.21) during the year. Our effective tax rate is about 20% as compared to about 16.4% in the previous year. PAT has increased by 55% to Rs.3,389 million as compared to Rs.2,187 million in the previous year mainly because of the reasons explained above.

Dividend

Based on the Company's consistent performance, your directors had declared a first interim dividend of Rs.3/- per share on the equity shares of Rs.10/- each (par value) on October 16, 2012 and were paid to the Shareholders who were on the Register of Members of the Company as on the record date at the closing hours of October 29, 2012.

Your Directors have also declared a second interim dividend of Rs.4/- per share on the equity shares of Rs.10/- each (par value) for the year ended March 31, 2013 which is payable to the Shareholders who would be on the Register of Members of the Company as on the record date at the closing hours of May 06, 2013.

Your Directors also recommended a final dividend of Rs.5/- per share on the equity shares of Rs.10/- each (par value) for the year ended March 31, 2013 which is payable on obtaining Shareholders' approval in the fourteenth Annual General Meeting, making the total dividend for the year 2012-13 to 120% of the paid up capital.

The dividend will be paid in compliance with all the applicable regulations. The dividend pay-out amount for the current year inclusive of additional tax on dividend will be Rs.578 million as compared to Rs.188 million in the previous year.

In view of the improved predictability and stability of the Company’s operations, the Board intends to maintain similar or better levels of dividend payout over the next few years. However, the actual dividend payout in each year will be subject to the investment requirements of the annual operating plan for the year and any other strategic priorities identified by the Company.

Transfer to Reserves

We propose to transfer Rs.339 million to the general reserve in accordance with the Companies (Transfer of Profit to Reserves) Rules, 1975. Your Company also proposes to retain Rs.9,198 million in the statement of profit and loss on standalone basis.

Changes to Equity Share Capital

Your Company also issued 991,132 equity shares of Rs.10/- each to various Mindtree Minds on exercise of stock options. Consequently, the paid-up equity share capital has increased from Rs.405,439,230 to Rs.415,350,550 as on March 31, 2013.

Board Committees

The details of various Committees of the Board are provided in the Corporate Governance Report.

Infrastructure

In 2011-12, your Company has added a new facility at Chennai in Ramanujan IT City comprising of 73,000 sq. ft. area spread over two floors. This has enhanced our seating capacity by 717 seats. This facility boasts of two world class Network Operations Centers. We are in the process of adding another 1,500 seats at this campus. The proposed new facility at Mindtree East Campus, Bangalore, is slated to be ready by June 2013, thus giving us an ability to add about 1,800 seats as and when business requirements demand for it. We have also added 2,50,000 sq. ft. of area at Global Village, with a seating capacity of about 2,500. As soon as we receive necessary statutory approvals, we will commence construction of Mindtree Kalinga at Orissa. We will work towards making this operational during 2014. With a view to broaden our presence near site, we have started operations at our first U.S Development Center at Gainesville.

Currently your Company has about 2 million sq. ft. of built up space with 12,375 seats and an ability to ramp up additional seats quickly, as and when needed.

Your Company is also glad to announce that, two of its facilities, Mindtree East Campus at, Whitefield, Bangalore and Mindtree Hyderabad are certified as “LEED GOLD” for Commercial Interiors. We are aspiring to get a LEED Platinum rating for Mindtree East Campus, Phase 2 building and Mindtree Kalinga and also LEED GOLD for Phase 5 at Bangalore, Global Village.

Subsidiaries

With the dissolution of Mindtree Software (Shenzhen) Co. Ltd. with effect from September 6, 2012, we had one subsidiary company for the financial year ended on March 31, 2013, namely, Mindtree Software (Shanghai) Co. Ltd.,

As per Section 212 of the Companies Act, 1956, companies are required to attach the directors' report, balance sheet and profit & loss account of its subsidiaries. The Ministry of Corporate Affairs vide its circular No. 2/2011 dated February 8, 2011 has provided an exception, to companies from complying with Section 212, provided, such companies publish the audited consolidated financial statements in annual report. The annual report for 2012-13 does not contain the financial statements of our subsidiary(ies). The audited annual accounts and related information of our subsidiary(ies), where applicable will be made available upon request.

People

The total number of Mindtree Minds as at March 31, 2013 was 11,591 as against 11,000 as at March 31, 2012. During the year, your Company saw a decrease in attrition levels towards the end of the financial year and the annual attrition for the year was at 13.39% as against 18.2% in the year before. During the year under review, your Company has focused on people engagement practices, career aspirations management and innovative practices in learning and development and compensation, which have all worked in favour of retention of our talent.

Your Company's multiple-award winning HR practices and great work environment helped to attract and retain talent. Your Company's People Function works to align people's interests to the business goals. This creates a favorable environment and promotes innovation and merit. This strong alignment of our people's interests and business interests, led the organization to achieve its objectives and thus create value for people and customers. We have dedicated programs to help our people build new skills and competencies which promote knowledge sharing, building effective teams, etc., Your Company continues to innovate in knowledge management to ensure learning is captured & disseminated across teams.

A future-ready organization needs to continuously evaluate its leadership capital. At different stages in an organization's growth, we need different calibre of leaders. Towards this, last year we engaged Korn Ferry one of the best known leadership development consulting organisations. One hundred & twenty leaders took the assessment to understand the agility and competence levels. The overall assessment showed us where and how we must change, including critical gaps that must be filled with new talent from outside.

Employee Stock Option Plans

Your Company believes in the policy of enabling Mindtree Minds to participate in the ownership of Mindtree and share its wealth creation, as they are responsible for the management, growth and financial success of Mindtree.

The Company currently administers eight stock option programs, viz., ESOP 1999, ESOP 2001, ESOP 2006 (a), ESOP 2006 (b), ESOP 2008 (A), DSOP 2006, ESOP 2010 (A) and Mindtree Employee Restricted Stock Purchase Plan 2012.

A reconciliation statement of the equity shares approved in-principle and later allotted and listed till March 31, 2013 is given below:

Equity shares reconciliation statements

The details as required under SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, have been disclosed under Annexure to the Directors' Report. There has been no variation in the terms of ESOP/ESPS programs and no employee was:

  1. granted options, during the year, equal to or exceeding 1% of the issued capital.
  2. received a grant, during the year, amounting to 5% or more of the options granted during the year.

Details of options granted to Senior Managerial Personnel and Directors during the year are as under:

Managerial personnel and directors granted options

Directors

As per Article 109 of the Articles of Association of the Company, the following Directors retire by rotation and being eligible, offer themselves for reappointment.

  1. Prof. David B. Yoffie;
  2. Prof. Pankaj Chandra; and
  3. Mr. Ramesh Ramanathan.

Mr. N.S. Parthasarathy has been appointed as an Alternate Director to Mr. S. Janakiraman, effective from October 22, 2012 and Mr. Anjan Lahiri had been appointed as the Executive Director effective from October 24, 2012.

Your Directors recommend that the resolutions relating to the re-appointment of Prof. David B. Yoffie, Prof. Pankaj Chandra, Mr. Ramesh Ramanathan and Mr. Anjan Lahiri as Directors of your Company be passed. Their brief resumes are attached to the notice of the fourteenth Annual General Meeting pursuant to the provisions of Clause 49 of the Listing Agreement.

Liquidity

Your Company maintains sufficient cash to meet its operations and strategic objectives. Our cash generation during the year has been healthy. Our cash and investments (net of short term borrowings) have increased from Rs. 3,270 million as at March 31, 2012 to Rs. 5,062 million as at March 31, 2013. These funds have been invested in deposits with banks, highly rated financial institutions, certificates of deposits and in money market mutual funds.

Brand Identity

During this financial year, your Company announced its new brand identity with the unveiling of its new mission, values and logo. The rebranding initiative reinforces the Company's ongoing transformation to an expertise-led organization. The new brand identity highlights Mindtree's differentiated approach to sophisticated global customers, while also appealing to younger audiences that form the global talent pool of the future.

The rebranding activity is a strategic component of Mindtree's vision of becoming a billion dollar company and will bring alive the new values of 'Collaborative Spirit, Unrelenting Dedication and Expert Thinking'.

Mindtree's new logo of multiple strands weaving into a harmonious hub represents the meeting of minds and technology and speaks of humanity while projecting a forward looking momentum. The tagline “Welcome to possible” is a simple but powerful expression of the brand mission, values and promise. The brand identity was designed in Los Angeles, USA by Siegel + Gale.

We made 3 important changes to our brand that will put Mindtree in a different league.

Mission- Our new mission is "We engineer meaningful technology solutions to help businesses and societies flourish”

Values- The new values that will drive our behavior to be an expertise-led organisation are

  • Collaborative Spirit
  • Unrelenting Dedication
  • Expert Thinking

Voice- The Mindtree brand has a bold voice and we choose the following to communicate our personality to the stakeholders

  • Bright
  • Confident
  • Active

Logo- We also changed our visual identity as part of this exercise. The new logo symbolises our mission, values and brand voice.

Together, these changes will lead us to the next level of growth and positioning for Mindtree. We are confident that the change is in the right direction and will play a pivotal role in preparing the organisation to be relevant and significant to our customers.

Awards and Recognitions during FY 2012-13

  • During the year, your Company received various awards and recognitions. Some of the key accolades received during the year include:
  • Named 'Best Corporate Governance India', 2013 by World Finance Magazine
  • Topped the category of ‘Best for Investor Relations in India’ as per Asiamoney Corporate Governance Poll 2012
  • Selected by WASL procurement team (Our Client) as 'Best Supplier in the IT- Software Services Category' in December 2012. This award is an endorsement of all the hard work the SAP Practice IG has put in over the years to make various projects successful.
  • Selected by Forbes Asia as one of the '200 Best under a Billion Companies' of 2012. From a list of 15,000 companies, the screening was done based on sales growth, earnings growth and return on equity in the past 12 months and over three years.
  • Second runner-up in the 'People's Green Award' category as part of the TCS World 10K marathon that was held in Bangalore, 2012.
  • Mr. Rostow Ravanan, CFO, Mindtree, named amongst the top 100 CFOs in India by the CFO Magazine for 2012 under the category of ‘Winning Edge in Strategy'. This is the third year in succession that Rostow has made it to the coveted list.
  • Ranked among the top five global R&D services providers in 'Global R&D Services Providers 2012' by Zinnov Consulting.
  • Positioned as the third leading semiconductor R&D service provider in a survey conducted by Zinnov Management Consulting that covered India, China, Russia and Eastern Europe.
  • Mr. Krishnakumar Natarajan, CEO & MD, has been ranked 28th in the 50 highest rated CEOs globally, by Glassdoor's Annual Survey.
  • Mindtree is consecutively awarded 7th time winner of India's Most Admired Knowledge Enterprise (MAKE) award.

Litigation

No material litigation was outstanding as at March 31, 2013.

Deposits

In terms of the provisions of Section 58A of the Companies Act, 1956 read with the Companies (Acceptance of Deposits Rules) 1975, the Company has not accepted any fixed deposits during the year under review and as such, no amount of principal or interest was outstanding as on March 31, 2013.

Sustainability Report and Green Initiatives at Mindtree

The report on Sustainability and Green Initiatives taken by your Company is disclosed separately in this report as a part of Business Responsibility Report.

Corporate Governance

Your Company has been practicing the principles of good corporate governance.

A detailed report on corporate governance is available as a separate section in this annual report. Certificate of the Auditors regarding compliance with the conditions of corporate governance as stipulated in Clause 49 of the Listing Agreement is also given in this annual report.

Transfer to Investor Education and Protection Fund

The Company had transferred unpaid dividend amounts within the statutory period to the Investor Education and Protection Fund. During the year 2012-13, unpaid or unclaimed dividend of Rs.48,579.90/- was transferred to the Investor Education and Protection Fund, as required under the Investor Education and Protection Fund (Awareness and Protection of Investor) Rules, 2001.

Statutory Auditors

The retiring Statutory Auditors, B S R & Co., Chartered Accountants, hold office as Statutory Auditors until the conclusion of the fourteenth Annual General Meeting and they have confirmed their eligibility and willingness to accept office and be re-appointed as the Statutory Auditors to hold office until the conclusion of the fifteenth Annual General Meeting.

The Audit Committee and the Board of Directors recommend the reappointment as Statutory Auditors, B S R & Co., Chartered Accountants, be re-appointed as the Statutory Auditors to hold office until the conclusion of the fifteenth Annual General Meeting.

Particulars of Employees

As required under the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the annexure to this report. The Ministry of Corporate Affairs, has amended the Companies (Particulars of Employees) Rules, 1975, to the effect that particulars of employees of companies engaged in Information Technology sector posted and working outside India not being directors or their relatives, drawing more than Rs.6 million per financial year or Rs.500,000 per month, as the case may be, need not be included in the statement but, such particulars shall be furnished to the Registrar of Companies. Accordingly, the statement included in this report does not contain the particulars of employees who are posted and working outside India.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outflow

The particulars as prescribed under Section 217(1)(e) of the Companies Act, 1956, read with the Companies(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are set out in the annexure to this report.

Directors' Responsibility Statement

Directors' Responsibility Statement pursuant to Section 217(2AA) of the Companies (Amendment) Act, 2000, is annexed to this report.

Management Discussion and Analysis Report

Management Discussion and Analysis Report as required under Clause 49(IV)(F) of the Listing Agreement is disclosed separately in this report.

CSR Efforts & Assistive Technology

MindTree Foundation's Charter has three aspects to it:

  • To promote education to underprivileged children with a special emphasis on special or differently abled children.
  • To provide relief of poverty by way of assistance to food, shelter and clothing.
  • To provide relief of distress caused by calamities of nature.

All the activities undertaken by MindTree Foundation are broadly segregated under three programs as mentioned above. Programs taken up by MindTree Foundation during FY 2012-13 include:

1. Donation Programs:MindTree Foundation supports the under privileged children and children with disability, with resources in the form of money, infrastructure and education:

  • Built a new home for the inmates of Missionaries of Charity (M.O.C) Yelahanka, Bangalore at an expense of Rs.200 lakhs
  • Donated Rs.25 lakhs to SSK (Spastics Society of Karnataka) for installing a passenger-lift for their satellite treatment center IGICH (Indira Gandhi Institute of Child Health) premises in Bangalore.
  • Donated Rs.20 lakhs to Sparsh Hospitals to do corrective surgeries for the underprivileged children.
  • Installed a 63 KVA Electrical Transformer worth Rs.7 lakhs at a Leprosy Home in M.O.C. Janla, Odisha
  • Donated Rs.5 lakhs to Sikshana Foundation, an N.G.O and supported 12 schools in Kanakapura District in Karnataka to improve their standards. This benefited about 1005 children.
  • Donated 300+ computers to various NGOs and special schools’ utilization.

2. Voluntary Programs: Mindtree Foundation creates a platform for Mindtree Minds to do voluntary work and learn to collaborate and dedicate themselves to make a difference in the society.

  • In partnership with TTK Blood bank, MindTree Foundation conducted blood donation camps at Mindtree Bangalore, Pune, Hyderabad and Chennai and successfully collected 1,083 bottles of blood.
  • Conducted clothes drive during the year and sent 4 truck load of clothes for Goonj in India.
  • Ensured that the TSA (Technologists for Social Action) programs are organized on every second Saturday simultaneously across Mindtree Bangalore, Chennai, Hyderabad and Pune. Modified the programs from the year 2013 onwards by creating hands-on activities (to clean the floors, ceilings, change beds, bedspreads, feeding the inmates, cleaning the kitchen, toilets etc.,) for all the participants at M.O.C. premises. MindTree Foundation had 623 participants during the said year.
  • With the help of the Blessed Parents (Mindtree Leaders), MindTree Foundation sponsors 14 children from Somanahalli village for their higher education this program has been very successful so far. Two out of these 14 children have been admitted into Engineering Colleges for higher studies.
  • The joy of giving program brought about 800 volunteers participating from 6 project teams and made a huge difference to 650 children from the Government Schools.
  • With the support of 44 volunteers, MindTree Foundation conducted life skills programs in Mindtree Bangalore and Chennai for Government by benefitting 310 school children.

3. Technical Consultancy Programs: MindTree Foundation receives requirements from IIT-M (Indian Institute of Technology - Madras), SSK, and SPASTN (Spastics Society of Tamilnadu) on their various needs for technical solutions. MindTree Foundation supports them by collecting, evaluating, finding internal resources and external vendors to provide solutions.

  • IIT-M supplies ADITI to Vidyasagar School for disabled children in Chennai. MindTree Foundation continues to help IIT-M to make 100 more units of ADITI and so far, it has contributed in delivering 200 units to IIT-M.
  • KAVI-PTS: Based on IIT-M's request, MindTree Foundation conceptualized KAVI-PTS and provided technical solutions and received appreciations from IIT-M for the same. IIT-M has also taken the solution to the Google Market.
  • Mobile Training Aid: MindTree Foundation is in a process of providing solution on Mobility Training Aid (for Cerebral Palsy affected kids) to IIT-M.
  • MindTree Foundation presented a technical paper on KAVI-PTS to IIT-M for the IEEE Global Humanitarian Technology Conference - South Asia Satellite (GHTC SAS 2013) under the Inclusive Technologies for the Differently abled track.
  • Finger-Switch: MindTree Foundation delivered Finger-switch POCs for Cerebral Palsy affected kids to IIT-M. This is demonstrated to National Trust Laboratories, Delhi and to Perkins, US.
  • SPASTN requested 32 types of technical solutions for their children with disabilities. MindTree Foundation created a volunteer team (with the help of delivery heads) in Chennai and Bangalore to deliver the solutions and has also identified 20 solutions which are under progress.
  • Suction Ball: MindTree Foundation has successfully delivered 45 numbers of the Suction Balls to SPASTN. This helped the children with Attention Deficit Hyper Active Disorder (ADHD), Cerebral Palsy, and Autism disabilities. MindTree Foundation also facilitated the development of KINECT based Gesture Comparison program for SPASTN, Chennai.

MindTree Foundation has won the award from SHRM India HR Awards'12 under the category “Excellence in Community Impact”. This is an award constituted for HR excellence by Society of Human Resource Management (SHRM) and Economic Times.

Abraham Moses, Head, MindTree Foundation, has been awarded Forbes 2012 Philanthropy Award under the category “Good Samaritan” for his combined efforts in looking after administration and the personal welfare of Mindtree Minds.

Quality Initiatives

We continue our journey of delivering value to our clients through significant investments in quality programs. We have adopted several external benchmarks and certifications. Your Company is certified under various standards to meet clients’ requirements and enhancing valuable delivery.

Customer Satisfaction

From last year, we have partnered with an independent firm to do our Annual Relationship Survey with our customers. We continue to leverage this relationship to bring the best practices into the engagement process as well as to bring in industry insights.

This year's Customer Experience Survey was conducted over 5 weeks in January and February and we had a record number of 86% of our customers who participated in this survey. We are happy to report that on the two major parameters of Satisfaction and Advocacy we have increased our scores to 5.29 and 5.28 respectively on a 7 point scale.

The increased rigour in delivery has resulted in customers being happy about the Quality of Deliverables, Meeting Commitments and Overall Program Governance while the Collaborative Spirit has resonated with a majority of customers as Attitude and Willingness to go the extra mile.

Our investments in internal certification programs for project management, technical skills, leadership attributes have started delivering the desired results.

Customer Centricity will continue to be a thrust area during FY 2013-14 and deliver sustained performance through our customer facing processes, systems and quality.

Business Responsibility Report:

As per Clause 55 of the Listing Agreement, certain listed companies should submit as a part of the annual report, “Business Responsibility Report” describing the initiatives taken by the companies from an environmental, social and governance perspective.

We have always been at the forefront of voluntary disclosures to ensure transparent reporting on all matters related to our Company's governance and business operations and have voluntarily undertaken to publish the required data. The report covers our philosophy on corporate social responsibility, initiatives and activities taken up as part of this philosophy for the year 2012-13. Our Business Responsibility Report is available as a separate section of this annual report & the Sustainability Report will be available on our website www.mindtree.com. This is a comprehensive report that covers all aspects of our sustainability activities pertaining to our efforts on conservation of environment, conducting green awareness events, our commitment towards society, enhancing primary education, etc., This report is audited by reputed external Auditors.

Insider Trading Regulations

Based on the requirements under SEBI (Prohibition of Insider Trading) Regulations, 1992, as amended from time to time, the code of conduct for prevention of insider trading and the code for corporate disclosures are in force.

Acknowledgements

The Board thanks the Company's customers, Mindtree Minds, Shareholders, Investors, Vendors, Bankers and Academic Institutions and all other stakeholders for their support to the Company during the year. Your Directors would like to make a special mention of the support extended by the various Departments of Government of India, the State Governments, particularly, the Software Technology Parks-Bangalore, Bhubaneswar, Chennai, Hyderabad, Pune and other Government and State Government agencies, the Tax Authorities, the Ministry of Commerce, Reserve Bank of India, Ministry of Corporate Affairs, Ministry of Communication and Information Technology, Ministry of Finance, the Customs and Excise Departments, Securities and Exchange Board of India and others and look forward to their support in all future endeavors.

For and on behalf of the

Board of Directors

Bangalore
April 22, 2013

Subroto Bagchi
Chairman