Mindtree’s June-Q results failed to meet expectations. While cc revenue growth of 1.2% was soft, what was most disappointing was the 250bps q-o-q decline in realisations. The weak start puts paid to management’s confidence of delivering a low double-digit revenue growth in FY18, which implied an aggressive 3.5%+ CQGR. Given the June-Q miss, we cut FY18/FY19E earnings estimates by 2%/10.5% respectively. We expect Mindtree to deliver a 6.5%, vs 8.1%y-o-y earlier, dollar revenue growth in FY18 with an EPS of Rs 28.95 vs Rs 29.6 earlier. Retain ‘sell’ with a revised target price of Rs 370. Revenue of $ 200.1m, +2.3% q-o-q, 0.7% below Dbe, was driven by 3.7% q-o-q volume growth. Blended realisation declined 2.5% q-o-q in cc terms.
Operating margin (EBIT) was 7.6%, -306bps qoq, 144bps below DBe. Net income of Rs 1.2 billion, +25.2% q-o-q, 11.1% above Dbe, benefited from a reversal of liability towards acquisition. Key positive: Strong revenue growth in the financial services, +4.1%q-o-q, and technology, media and services, +3.5% q-o-q verticals. Key negatives: Revenues from consulting, package implementation, IP-led revenues and testing services declined 13% q-o-q, 6.6% q-o-q, 13.4% q-o-q and 3.4% q-o-q respectively. Revenues from top 2-10 customers declined 2.9% q-o-q.
Following the weak June-Q, we remain skeptical of the management’s ability to maintain its bullish FY18 revenue outlook. Our revised estimates factor a 2.3% CQGR in revenues over the remaining quarters of FY18, which could help Mindtree deliver a 6.5% y-o-y dollar revenue growth in FY18 – a far cry from the double digit revenue prognosis of the management at the end of Q4FY17.