MindTree board OKs chairman's resignation

MUMBAI, INDIA: Mid-tier IT firm MindTree Ltd on Monday said its board has accepted its chairman's resignation, sending its shares down 14 per cent to their over 17-month lows.

On Friday, MindTree said Ashok Soota, founder and executive chairman, had submitted his resignation to the board of directors, and requested to release him by March 31.

"The resignation has spooked people in terms of going forward what will be the strategy and how will things get rationalised," said Angel Broking analyst Srishti Anand.

At 1.58 p.m., the shares, which the market values at $451.7 million, were down 13 per cent at 446.5 rupees.

Soota had co-founded MindTree in August 1999 with nine other industry professionals and holds 11.14 per cent in the company as of Dec. 31, 2010.

There are some concerns that Soota might have quit MindTree to set up a similar venture, Anand said.

On Friday, Soota had cited "personal reasons" behind his resignation.

"I will finalize and announce my plans for a new business venture, shortly after my departure from MindTree," he had said.

However, media reports suggest MindTree has inked a one-year non-compete agreement with Soota that prohibits him from poaching the firm's existing clients and employees. The company declined to comment when contacted by Reuters.

"Existing clients will not move, existing employees will not move, but it will be very difficult for MindTree to get new clients with another direct competitor in the fray," another Mumbai-based analyst with a local brokerage, who did not wish to be named, said.

Small- and mid-cap IT companies have been grappling with tepid demand, high attrition rates and a rise in expenses.

Over the past few months, MindTree's performance has been under pressure as the company initially planned the launch of a 3G smartphone based on Google Inc's Android platform in the United States, but later abandoned the plan.

The company decided to convert the handset and 4G long-term evolution IPR business into providing research and development services to network infrastructure and handset firms.

As part of the restructuring, the company had in Oct-Dec incurred a cost of $3.7 million. Earlier this month, the company had posted a consolidated net profit of 305 million rupees for Oct-Dec, down from 537.7 million rupees in the year-ago quarter.

Terming Soota's exit "sudden," the Mumbai-based analyst said, "Over the last year, the company has not been able to perform."