Management Discussion and Analysis


Readers are cautioned that this discussion contains forward looking statements that involve risks and uncertainties. When used in this discussion, the words “anticipate”, “believe”, “estimate”, “intend”, “will” and “expect” and other similar expressions as they relate to the Company or its business are intended to identify such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. Actual results, performances or achievements could differ materially from those expressed or implied in such forward looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of their dates. The following discussion and analysis should be read in conjunction with the Company's financial statements included in this report and the notes thereto. Investors are also requested to note that this discussion is based on the consolidated financial results of the Company.

Economy & IT Services Industry

Uncertainty pervaded the global economy leading to a slower recovery in 2012 (3.2% growth in world GDP in 2012 compared to 4% in 2011, as per the IMF), with continued strains in Europe and a drag on growth in emerging economies specifically China. Year 2013 is expected to see an improving global economy (3.3% growth), led by a strong US economy, an easing Europe and a stabilizing China. Emerging economies are expected to grow by 5.3%; the US by 1.9% and the euro-area likely to contract by 0.3%. Downside risks include drag on the US growth due to excessive near-term fiscal consolidation and prolonged stagnation in the euro-area, both of which could have negative spillovers on the global economy. On the positive front, there are key economic tailwinds in the US and emerging economies, which offer hope for a promising 2013.Overall, macroeconomic factors indicate a gradual recovery and a cautious positive outlook for2013; primarily fuelled by consumption growth and private sector spending in the US towards the second half of 2013 (and) domestic demand growth in China; marginally offset by fiscal consolidation issues in the US and euro zone setbacks.

Global IT services spending is set to recover, driven by improvements in macro-economic fundamentals. Uncertainties around IT budgets and technology investments are expected to clear out to a large extent in 2013. Gartner research predicts that the worldwide spending on IT services shall accelerate by 4.5% to $918 billion in 2013 compared to 1.5% growth in 2012.

As per NASSCOM, the worldwide IT-BPO outsourcing market is valued at $124-130 billion in 2012. India continues to be the leader in the IT-BPO outsourcing market, with a significant cost-advantage and a 52% market share. The Indian IT industry continues on its growth path, although growth has been a tad slower in FY2013 due to global economic uncertainties. NASSCOM estimates that Indian IT-BPO services exports shall grow by 12-14% to $84-87billion in FY2014, compared to 10% growth in FY2013.

With the market releasing its pent-up demand in 2013, the traditional application development and maintenance services shall dominate in terms of dollar spend; however, emerging service segments such as Infrastructure Management Services, Business Intelligence/Analytics Services and Testing Services shall grow much faster over the next few years.

The future of the IT services industry shall be defined by “Consumerisation of IT”, with enterprises focusing on IT as a key differentiator to their businesses and service providers investing in a combination of services, products and platforms to create“transformative” business value for customers. Enterprises are likely to invest significantly in ecosystems built around SMAC technologies (Social media, Mobility, Big Data/Analytics and Cloud services). As these disruptive technology trends increasingly gain mainstream adoption, they are expected to offer a definitive fillip to global IT spending.

Indian IT service providers have been increasingly focusing on:

  • Strengthening customer-facing teams and mining focus accounts
  • Deepening vertical specialization and building deep domain expertise
  • Broadening services portfolio
  • Evolving newer business models, building non-linear revenue streams
  • Augmenting global delivery models

Financial Performance


Revenue for the year in USD terms grew by 8.2% to USD 435.7 million. In rupee terms, revenue for the year is Rs. 23,618 million signifying a growth of 23.32%.

Fee revenue growth in USD was driven mainly by a volume growth of 6.4%. Price realization improved by 2%.

We analyse our revenue based on various parameters. The factors which are driving our revenue growth (in USD terms) are as follows:

  • Revenue by business: ITS revenue grew by 14.7% in the current year from USD 264 million to USD 303 million.
  • Revenue by geography: Europe revenue grew by 21.6% followed by US revenue which grew by 6%.
  • Revenue by service offering: Our revenue from Infrastructure Management and Tech Support grew by 41.1% year-on-year. This was followed by Development revenue which grew by 24% in the current year.
  • Revenue by vertical: Among the verticals, ITS–Others mainly comprising of Telecom grew 32.2% in the current year followed by Manufacturing and Retail which grew by 15.6% and BFSI which grew by 14.2%.
  • Revenue by mix: Our onsite revenue grew by 21% in the current year as compared to a growth of 1.7% in offshore revenue.
  • Client contribution to revenue: Revenue from our top 10 clients grew by 17% in the current year.

A graphical presentation of revenue analysis based on various parameters is given below.

Revenue distribution by geography

financial years
revenue analysis graphical presentation

Revenue distribution by service offering

service offering revenue distribution

Revenue distribution by industry

industry revenue distribution

Revenue distribution by mix

mix revenue distribution

Our active customers list as at March 31, 2013 stands at 232.

Our $ 20 million clients increased from 4 to 5, $ 10 million clients increased from 7 to 9 and $ 5 million clients increased from 17 to 20.

Other income (excluding foreign exchange gain)

Other income for the year ended March 31, 2013 is Rs. 350 million and has increased by Rs. 162 million over the previous year (Rs. 188 million). This is mainly because of higher interest income and investment income during the year.

Foreign exchange loss/gain

Foreign exchange loss for the year ended March 31, 2013 is Rs. 340 million as compared to a gain of Rs. 197 million in the previous year. This is mainly because of the loss posted on our hedges because of rupee depreciation of about 14% during the year.

Profitability and Margins

  • EBITDA margins are at 20.58% as compared to 15.3% in the previous year. The main reason for the increase in EBITDA margin is rupee depreciation of about 14% during the year.
  • Our effective tax rate has increased from 16.4% in the previous year to 20% in the current year. This is mainly because of 2 SEZ units which have moved from a 100% tax benefit on profits to 50% tax benefit on profits in the current year (net of foreign tax credit of Rs. 97 million in the current year).
  • PAT has increased by 55.3% to Rs. 3,393 million mainly because of the reasons explained above.

Segmental reporting

The Group's operations predominantly relate to providing IT Services and PE Services. The Group considers the business segment as the primary segment and geographical segment based on the location of customers as the secondary segment.

The accounting principles consistently used in the preparation of the financial statements are also consistently applied to record income and expenditure in individual segments.

Income and direct expenses in relation to segments are categorised based on items that are individually identifiable to that segment, while the remainder of costs are apportioned on an appropriate basis. Certain expenses are not specifically allocable to individual segments as the underlying services are used interchangeably. The Group therefore believes that it is not practical to provide segment disclosures relating to such expenses and accordingly such expenses are separately disclosed as unallocable and directly charged against total income.

The assets of the Group are used interchangeably between segments, and the management believes that it is currently not practical to provide segment disclosures relating to total assets and liabilities since a meaningful segregation is not possible.

segmental reporting
segmental reporting

Significant changes in Balance Sheet items

  • Increase in reserves and surplus of Rs. 3,555 million is due to:
    • Securities premium account increased by Rs. 317 million because of exercise of employee stock options.
    • General reserve increased from Rs. 752 million to Rs. 1,091 million due to transfer to reserve in the current year on account of dividend declaration (as per limits prescribed by the Companies Act).
    • In accordance with AS 30, the exchange gain from derivative instruments which qualify for cash flow hedge accounting is credited to hedge reserve to the extent of Rs. 173 million (previous year – loss of Rs. 250 million).
    • Balance in the statement of profit and loss increased from Rs. 6,760 million to Rs. 9,236 million due to current year profits.
  • Short-term borrowings have decreased by Rs. 190 million due to repayment of packing credit loan of USD 4 million (net) during the current year.
  • Other current liabilities have decreased by Rs. 290 million mainly because of decrease in derivative liability (Rs. 577 million) due to expiry of USD 29.25 million of forward strips and leverage option contracts during the year and due to positive mark to market provision on our hedges as reflected in hedge reserve. This is offset by increase in employee related liability (Rs. 187 million), creditors for capital goods (Rs. 72 million) and others (Rs. 28 million).
  • Short-term provisions have increased by Rs. 388 million due to increase in provision for dividend and dividend tax payable (Rs. 364 million), employee benefits (Rs. 44 million), provision for discount (Rs. 36 million) and others (Rs. 8 million). This is offset by decrease in provision for taxes (Rs. 58 million) and others (Rs. 6 million).
  • Additions to fixed assets during the current year is Rs. 626 million (previous year Rs. 282 million) mainly on account of Computer systems and software and leasehold improvements. Capital work-in-progress is mainly on account of spend on new facilities at Chennai, Bangalore and Bhubaneswar.
  • Long-term loans and advances have increased by Rs. 73 million mainly due to advances paid towards electricity charges (Rs. 64 million) .
  • Our cash generation during the year has been healthy. Our cash and investments (net of short-term borrowings and book over draft) have increased from Rs. 3,145 million as at March 31, 2012 to Rs. 5,149 million as at March 31, 2013.
  • The Days Sales Outstanding (DSO) as at March 31, 2013 is 70 days as compared to 73 days at March 31, 2012.
  • Other current assets have increased by Rs. 455 million mainly because of increase in unbilled revenue (Rs. 158 million), increase in derivative asset (Rs. 156 million), increase in prepaid expenses (Rs. 61 million) and increase in deposits (Rs. 80 million).

Strengths & Opportunities

1.Customer-focused Growth Strategies

Our customer-focused “Account Mining” strategy has yielded good results, with our Top 10 customers emerging as our major growth engines. Our Top 10 customers have grown at over 17% in FY13, compared to the company growth of 8% in the same period. We will continue investing in our Account Management teams to extend our farming successes beyond our Top 10 customers.

During FY13, $5M customers increased by 3 to 20; $10 M customers increased by 2 to 9; $20M customers increased by 1 to 5. Over 98% of our revenues in the past several quarters have come from repeat business (existing customers). Revenue per customer has been on the rise, signaling our success in mining focus accounts.

A key component of our ability to scale and grow with our customers is our focus on building global delivery centers to serve our customers. During FY13, we opened two onshore delivery centers; one at Gainesville (Florida, US) and another at Diegem (Belgium).

One of the most promising indicators of our customer-focused growth approach is the fact that our customers have rated us better on all key parameters (satisfaction, loyalty, advocacy) in 2013, as part of our annual customer experience survey. Over 86% of our customers participated in this survey.

annual customer experience survey results

Source: Mindtree Annual Customer Experience survey results

Besides, we are recognized among the Top 20 Indian players in IT Services by the National Association of Software and Service Companies (NASSCOM) for 2011-2012. We have also improved our Fortune India 500 ranking to 424 from 445 last year. We are featured on the “ET500 India's Top Companies - 2012” list by the Economic Times magazine, based on our overall revenues in FY2012.

2.Leadership Acumen and Corporate Governance

Our senior management comprises some of the most seasoned global leaders in the industry, from diverse backgrounds, geographies and with different areas of specialization in the IT services industry.

  • Our CEO, Mr. Krishnakumar Natarajan was ranked 28th (with an employee approval rating of 90%) amongst the Top 50 CEOs across the globe in 2013, by Glassdoor, a jobs and career community website.
  • Our CFO, Mr. Rostow Ravanan was named amongst the Top 100 CFOs in India by the CFO magazine for 2013 under the category of “Winning Edge in Strategy”. This is the third year in succession that Mr. Rostow Ravanan has made it to the coveted CFO100 list.
  • Our Chief People Officer, Mr. Ravi Shankar was recognized among the “40 Most Talented HR Leaders in India – 2012”, by the World HRD Congress and ET Now.
  • Our Chief Information Officer, Mr. Sudhir Kumar Reddy was honored by the CIO magazine as a “Super League Honoree” as part of the CIO100 awards in 2012.

We continue to have an unrelenting focus on our corporate governance standards. We won the award for “Best Corporate Governance India 2013” (second consecutive year), instituted by the World Finance magazine. World Finance assessment criteria included governance structure, board composition and transparency. In the assessment, Mindtree scored particularly high in the areas of investor relations quality, client appraisals, commitment to social responsibility and future growth predictions. According to the World Finance magazine, "Mindtree consistently lives its commitment to values, ethical business conduct and makes a distinction between personal and corporate funds in the management of the Company. Mindtree continues to provide a corporate governance model for its peer companies to emulate” Asiamoney Corporate Governance Poll 2012 ranked us top in the category of "Best for Investor Relations in India" and also ranked us second in India (up from third in 2011) for overall Corporate Governance, Best for Disclosure and Transparency, Best for Shareholders' Rights and Equitable Treatment, Best for Responsibilities of Management and the Board of Directors.

3.Domain Expertise

Our “back-to-basics” approach is premised on building deep domain specialization in chosen verticals and augmenting our service offerings to provide end-to-end solution for our customers. In our journey towards an “expertise” led organization, we have quite a number of success stories.

  • We developed a lean inventory management solution for a leading automobile player in the Indian market, which helped bring down excess inventory from 4000 cars to 360 cars in a span of 4 months.
  • We engineered a solution to improve underwriting practice efficiency for one of the largest property-casualty insurance companies in the US; this solution improved accuracy of reporting to regulatory & rating agencies; reduced non-compliance to less than 2%; saved $60 million+ in 5 years in reinsurance costs through better risk management and $20 million+ of additional revenues in 3 years through better pricing options.
  • We enabled a global leader in car rentals to earn 45+% of their revenues through e-commerce channel from < 2% in 2000-01. We engineered this third generation e-commerce platform with social media integration, personalization and loyalty management facilities. We also significantly reduced cost per booking by replacing call-center assisted booking with online self-services.
  • We are the primary solution development partner for the Government of India in building “Aadhaar”, the soon-to-be largest biometric identity system in the world. We have built a high performance solution using open source technologies; this solution can handle 1 million+ enrolments per day.
  • We designed field sales management mobile solution for a global CPG Company. This solution is being actively used by 800+ sales personnel for field sales planning, execution, analysis and reporting. We engineered a tablet-based mobile app for field sales personnel providing real-time market, product and store level details.
  • We redesigned the trade processing system for one of the biggest global fund management companies; this led to 20X improvement in tradeflow throughput for the customer, achieving almost real-time trade processing.
  • We are collaborating with one of the world's leading specialists in air transport communications and IT solutions in conceptualizing and building an industry-first solution that warns airlines and ground handlers of potential baggage mishandlings and offers advice to mitigate the risks of mishandling. This solution is expected to reduce annual costs on mishandled baggage by atleast 25% and save about $645 million per year for the airline industry.
  • We collaborated with one of the largest insurance companies in the US, in incorporating “lean” principles into our ADM/AMS/Testing services; this has led to overall cost-benefits of $1.5 million for the customer in just about a year.
  • We are Ranked among the top five global R&D service providers in the “Global R&D Service Providers (GSPR) Rating 2012” by Zinnov Consulting.
  • We are featured on the Asian Most Admired Knowledge Enterprise (MAKE) “Hall of Fame” in 2012, in recognition of being among the Asian MAKE award finalists consistently over the past five years. On similar lines, we are featured on the Global Most Admired Knowledge Enterprise (MAKE) “Hall of Fame” in 2012. We are among the Indian MAKE award 2012 winners, instituted by Teleos in association with The KNOW Network.
  • We won the 2012 NASSCOM IT user award in “Social Media Adoption in an Enterprise” category for our intranet application, PeopleHub.

4.Our Minds

One of our biggest strengths is our people, we call ourselves Mindtree Minds. We consistently strive to ensure that we offer the best workplace for our minds. This is ascertained by the various industry accolades and awards we have won in this regard. We are:

  • Featured on “India's Best Companies to Work For – 2012”, by the Great Place to Work Institute.
  • Awarded the bronze medal in the “Best Blended Learning Program” category as part of the TISS-LeapVault CLO (Chief Learning Officers)awards instituted by Tata Institute of Social Sciences and LeapVault in 2012, in recognition of our learning and development practices.

2012 was a special year for us as we opened our first major US development center in Gainesville (Florida), with the intent of creating at least 400 jobs in the Gainesville region over the next five years and locating closer to our customers in the US. We now have access to the top-notch talent pool from the University of Florida and other premier varsities in the US. We already have over 70 minds working in our Gainesville development center.

We recruit talent from some of the best universities, colleges and institutes in India and abroad, as well as some of the leading IT companies in India and overseas. In order to create a differentiated culture and preferred place to work, we have taken multiple measures. These include transparent evaluation criteria, continuous focus on training and new skills, competitive compensation packages, being a values-based organization, open communications policies and mentoring our minds for leadership roles.

Threats, Risks & Concerns

Uncertain economic environment in leading economies like the United States (US) and Europe can impact demand for IT services:

The overall business environment remains a little uncertain given the macro economic issues in the US and Europe, while the business sentiment in the US seems to be looking up, this still needs to be supported by increased demand for IT services. The economic outlook for Europe continues to look grim with more countries like Spain, Italy having stretched finances. Industry body NASSCOM has predicted growth of 12-14% in FY13-14 for the Indian IT services Industry. One view of the economic situation is that given the low economic growth which is likely in the US and Europe, companies in these countries will look to outsource more to get higher business benefits with lower spends.

Legislation in existing markets could restrict companies to outsource:

With about 57% of our revenues from US, any restrictions on outsourcing services and Visa’s for highly skilled workers by US government will negatively impact our business. One example of this is, in recent times the rejection rates for L1 visa petitions, which are used for intra-company transfers of employees from foreign offices to US offices has gone up. Between 2005 and 2007, the denial rate for L-1 petitions ranged from 6 to 7%, in 2008 it rose to 22% and reached 27% in 2011.

The proposed Senate Immigration reform bill if passed as law in its current form, will impact our business significantly. Some of the key provisions in the bill which would severely restrict our ability to perform our services onsite in the United States are

  1. A company having more than 15% of its workforce with H1B visa will be restricted from placing their H1B workers at offices of their clients. All Indian IT services companies place their employees with H1B visas to work at the customer premises as this is a critical element to ensure the Global Delivery model adopted by the IT services companies to be effective
  2. The bill requires companies wanting to use an H-1B visa to advertise for 30 days for a US worker and then attest under threat of legal penalty that no “equally qualified” American could be found to do the work. Under the bill, the Department of Labor would be able to determine whether the person the company hires meets the “equally qualified” standard. The bill also provides that up to two years after the fact, an employer could be punished if some official at Department of Labor decided it made the wrong hires.
  3. The immigration reform bill seeking to prevent undercutting American salaries, would require H-1B workers be paid more than under current law, and impose steep fees of $10,000 per visa on companies with more than half of their staff on H-1B visas
  4. The proposed legislation suggests that from 2016 any company with more than half of its staff on such work permits will be forbidden from applying for more visas, effectively creating a cap on temporary immigrant staff.
Pressure on pricing:

In a highly competitive environment, customers have tough expectations on pricing. We are focusing on providing higher value and differentiated services to beat the pricing pressures. Our strategy is centered on doing more with less and building deep domain expertise in our chosen areas. This approach should help us limit pressures on pricing.


The focus will be on fewer domains and take a lead in many of them. We have two growth engines to address the market – IT Services and Product Engineering Services (PES). The significant service lines which will help ITS and PES drive higher growth are Analytics and Information management, Digital business , Infrastructure Management services, Testing and emerging areas of Cloud, Mobility and Big data. The market for all these areas is highly competitive and rapidly evolving. We primarily face competition from Indian as well as international companies and captive offshore centers. Our mature global delivery model, range of services offered, our level of technical expertise and talented pool of people and our culture help differentiate us from some of our competitors. We have also expanded our global delivery model and have established dedicated development centers at Gainesville (Florida, US) and another at Diegem (Belgium). We will be able to offer follow-the-sun delivery in collaboration with our teams in India, same time-zone support, as well as other local services to our clients. We believe that price alone is not a sustainable competitive advantage in an environment where IT and technology is becoming increasingly critical to our client's core corporate strategy. We have therefore endeavored to develop competitive strength through our ability to provide personalized and differentiated service to our clients.

Talent acquisition:

Our success depends in large part upon our highly skilled software professionals and our ability to attract and retain such personnel. Due to the limited pool of available skilled personnel, we face strong competition to recruit and retain skilled and professionally qualified staff. Our talent acquisition philosophy is to recruit for attitude, train for skill and develop for leadership roles. We follow a role-based selection process and place high emphasis on cultural fit of the prospective staff members with our organizational values. We have a robust process to evaluate needs and acquire talent in tune with our business needs. Our talent acquisition is driven by the annual business plan (covering number of people needed by location and their levels and roles in the organization), which is monitored and continually adjusted based on business visibility on a monthly basis. We are also expanding our locational presence to tap the talent pools in newer cities.

Foreign currency rate fluctuations:

A major portion of our revenues are in foreign currencies and a significant portion of our expenses are in Indian Rupees. The exchange rate between the Rupee and the U.S. Dollar as well as other currencies has been very volatile in recent years and may continue similarly in future. Our operating results are impacted by fluctuations in the exchange rate between the Indian Rupee and the U.S. Dollar and other foreign currencies. Judiciously hedging against adverse foreign exchange exposures help in minimizing the impact of exchange fluctuations. We continue to maintain a prudent and balanced forex management policy which we expect will help us manage this risk appropriately.

Unstable law and order situation:

Recent Government assessments indicate that the software industry could be a soft target for a terrorist attack. Nationally and internationally recognized facilities that offer ease of access, certainty of tactical success, and the opportunity to kill in quantity will guide target selection. As a growing and reputed company, we have taken stock of our preparedness to face this risk and build defense and response mechanisms. We have initiated steps to enhance protection at all our centers.

Compliance to laws, regulations and statutes across the globe:

Adherence to laws, regulations and local statutes across the globe is a challenge to any IT Company today. Every country has its own law with respect to immigration, travel, visa, social security, etc which needs a detailed assessment and compliance. There is a risk of non – compliance in all new geographies where we enter. We have consultants across the globe, who support us in adhering to country specific compliances.

Our Strategy

Our execution continues to be guided by the following four strategy pillars, enabling us to grow faster and generate higher returns to our stakeholders.

mindtree strategy pillars


Our IT services business is on a positive momentum, having grown at more than 25% CAGR between FY11 and FY13. Our Product Engineering Services business has bottomed out and is expected to see positive growth going forward. Mindtree is confident of delivering broad-based growth in FY14, higher than in FY13.

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