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Analysts warn of ‘difficult’ FY17 for IT sector

Analysts warn of difficult FY17 for IT sector

Mindtree’s recent revenue warning for the September quarter is indicative of a “difficult” FY2016-17 for the Indian IT sector, analysts said today.

Last week, Mindtree said it expects its second quarter revenue to be lower than the previous quarter, impacted by cross-currency movements, project cancellations and slower ramp-ups in a few large clients across different verticals.

After the forecast, shares of Mindtree fell sharply by 8.25 per cent in intra-day trade before closing at Rs 521.70, still down by 5.13 per cent, at the BSE. Stock markets were closed yesterday for the ‘Ganesh Chaturthi’ holiday.

“Mindtree’s warnings confirms our thesis of a difficult FY17 (and most likely H1FY18) for the sector as a whole,” Emkay said in a note today.

Noting that Mindtree was hopeful of improvement in the second half of the fiscal, Emkay said it continues to “see downside risks to overall industry growth”.

“We believe Mindtree’s revenue outlook is optimistic and could see a downward revision… Growth challenges and margin pressures are becoming more evident for Mindtree,” Religare said.

The Bengaluru-based company had posted a 3.7 per cent drop in consolidated net profit at Rs 123.5 crore in the June quarter that witnessed “strong winds” in the form of slower project ramp-ups and loss from its Bluefin business.

Citing challenges in the global environment arising out of the UK’s exit from the European Union, Mindtree had said it expects strong revenue growth from the third quarter beating industry average.

Its revenues for the first quarter grew 35.8 per cent to Rs 1,327.6 crore in the quarter under review from Rs 977.5 crore in the year-ago period.

IT companies Infosys and Wipro disappointed the street with their muted first quarter numbers and said they were facing unanticipated headwinds and slower project ramp-ups in large deals.

However, industry body Nasscom has said there is no immediate reason to revise forecast of 10-12 per cent revenue growth in IT exports for FY17.