scorecardresearch

Mindtree Rating ‘Neutral’; Company continued to register robust growth

Margins saw a slight miss in Q4FY22; $ growth of 21.4% y-o-y is expected in FY23; ‘Neutral’ maintained

Barring UK (which had a 6% q-o-q decline in revenues in USD terms), all other geographies had healthy growth
Barring UK (which had a 6% q-o-q decline in revenues in USD terms), all other geographies had healthy growth

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

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Most Read In Market