Revise Mindtree EBIDTA margin estimates to 16.5%

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Published: April 21, 2018 3:12:15 AM

Mindtree results beat our estimates in dollar revenues, EBIDTA margin and PAT.

Mindtree, Mindtree EBIDTA margin, PAT, BFSI, mindtree revenue growthMindtree guided that FY19E EBIDTA margins would be better than FY18 (which is 13.6% EBIDTA margin for FY18). (PTI)

Mindtree results beat our estimates in dollar revenues, EBIDTA margin and PAT. PAT was 33% above our estimates led by margin beat and higher other income (aided by reversal in earn-out payment and forex gains). Revenues at $226.2mn were up 5.4% QoQ and up 15.6% YoY above our estimates (PLe: USD222mn). EBIDTA margin for the quarter came at 16.1% up 100bps QoQ and above our estimates. Within verticals, momentum was strong across portfolio baring BFSI. Mindtree guided for momentum in revenue growth to continue in FY19E aided by strong deal pipeline and improved deal closures.

However, Mindtree’s guided that FY19E dollar revenue growth would be better than FY18 which is ambiguous considering the strong 4QFY18 exit revenue run rate and positive growth commentary (Mindtree delivered only 8.6% dollar revenue growth in FY18E). Mindtree preponed wage hikes to 1QFY19E (compared to staggered wage hikes given over 2Q and 3Q every year). We read the preponing of wage hikes as positive which could also indicate robust revenue growth outlook for the company.

However, company cited that wage hikes would be 300bps headwind for 1QFY19E margins. We believe that strong revenue growth could partially offset the headwinds from wage hikes in 1Q. Mindree needs to deliver strong execution over 2Q-4Q to gradually recoup the margins.

Mindtree guided that FY19E EBIDTA margins would be better than FY18 (which is 13.6% EBIDTA margin for FY18). Despite strong 4QFY18 exit EBIDTA margin (16.1%), full year FY19E margin guidance looks conservative. Led by strong exit revenue runrate, we raise our dollar revenue growth estimates and now expect Mindtree to grow by 17% dollar revenue growth for FY19E (vs 12.7% modeled earlier). We revise Mindtree EBIDTA margin estimates to 15.5/16.5% for FY19/FY20E (vs 15.3/16% earlier).

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