Mindtree reported 0.4% c/c growth and surprised positively with 90 bps q-o-q EBITDA margin increase. The company reported record TCV of $ 314 million (up 50% y-o-y), which will help growth starting FY2018. However, our primary concern on modest execution remains, which will constrain profitable growth.
We cut FY2017-19E EPS by 4-6%. We roll over to FY2019E but lower PE multiple to 12.5X (13X earlier) as we factor potential risk to profitability from change in visa rules. Maintain ‘reduce’ rating with revised TP of R490 (R460 earlier).
Mindtree reported revenue growth of 0.4% in c/c and decline of 0.4% to $ 192 million. On expected lines, client metrics on ttm basis deteriorated with decline in $ 50 million clients and $ 25 million clients by one each.
EBITDA margin surprised positively with 90 bps on a sequential basis. We attribute the increase to— tight control on cost with sharp 60 bps qoq decline in subcontracting costs, higher contribution from IP revenues and possible benefit from fixed price (FP) milestone, reflected in sharp jump in FP contribution and pricing improvement even after making concessions for seasonal uptick in reported onsite and offshore rates in the December quarter.
Net profit of R1,031 million was ahead of our estimate courtesy margin outperformance. Mindtree has signed highest ever deals worth $ 314 million (+54% y-o-y) of which $144 million is new (+180% y-o-y). The deal wins are impressive and will aid growth starting Q1FY18E.