Mindtree’s revenues of $384 mn (+5.2% q-o-q in constant currency or cc, +4.7% q-o-q in USD terms) were marginally better than our estimate of 5% q-o-q cc growth. Growth was broad-based across verticals except for retail (-2.6% q-o-q growth in USD terms). Barring UK (which had a 6% q-o-q decline in revenues in USD terms), all other geographies had healthy growth.
Slight miss at margin level: EBITDA margin declined 50bp q-o-q, marginally higher than our estimate of 20bp decline. This was largely driven by gross margin drop of 60bp due to continued strong hiring (net headcount increased by ~10% q-o-q). EBIT margin dipped 30bp q-o-q to 18.9%. Mindtree increased its net headcount by ~47%, or ~11,257 employees, in FY22 (~50% are freshers).
Client metrics tracking in the right direction: Mindtree’s efforts to grow beyond its top client (~25% of revenues) continue to be at play. Revenues from its top client grew 18% y-o-y in USD terms and revenue from its top 2-10 clients increased 35% y-o-y. It added five clients in the $20 mn+ bucket in Q4FY22.
Deal wins continue to be sluggish; growth made up by smaller projects: The TCV of deal wins in Q4FY22 was $390 mn (+10% q-o-q, +4% y-o-y). Trailing 12-month deal wins at $1.6 bn were up 17% y-o-y and include both new deals and renewals. As we highlighted in our detailed sector report, smaller-sized deals outpace the larger ones, and Mindtree continues to benefit from this trend.
FY22 roundup and FY23 outlook: In FY22, Mindtree had 31% y-o-y growth in USD revenues, 10bp expansion in EBITDA margin to 20.9% and 49% y-o-y growth in EPS. For FY23F, it expects to continue its faster than industry growth driven by focused client mining efforts and participation in digital transformation projects with 20%+ EBITDA margin. We are modelling 21.4% y-o-y growth in USD revenues with 30bp decline in EBIT margin as discretionary costs like travel start to be felt.
<1% change in FY23-24F EPS, TP unchanged, retain Neutral: Our FY23-24F EPS changes are <1% and our TP is unchanged at Rs 4,320 (29x FY24F EPS). Our target multiple is based on a three-stage growth model discussed in our sector report. We prefer Persistent (PSYS IN, Buy) over all other mid-cap IT services companies. The stock currently trades at ~27x FY24F EPS.Mindtree Rating: Neutral- Company continued to register robust growth