Why you should ‘Sell’ Mindtree shares

By: | Updated: September 6, 2016 11:54 AM

IT company Mindtree on Friday post market hours issued a profit warning for the ongoing quarter ending October 2016, by forecasting a fall in revenue and margins in Q2FY17 compared with the previous quarter ended June 30, 2016.

Sensex, Nifty, Mindtree sharesIT company Mindtree on Friday post market hours issued a profit warning for the ongoing quarter ending October 2016, by forecasting a fall in revenue and margins in Q2FY17 compared with the previous quarter ended June 30, 2016.

IT company Mindtree on Friday post market hours issued a profit warning for the ongoing quarter ending October 2016, by forecasting a fall in revenue and margins in Q2FY17 compared with the previous quarter ended June 30, 2016. The slowdown in revenue is attributed to cross currency impact, project cancellations and slower ramp-up in a few large clients, and continued weakness in the UK subsidiary, Bluefin. After the warning given by the company on revenue front, Religare Institutional Research downgraded Mindtree shares with ‘Sell’ rating. The research house downgraded the March 2017 share price target of MindTree to Rs 425 from Rs 540 earlier.

The brokerage house in a research note said, “Growth challenges and margin pressures are becoming more evident for Mindtree. Given the limited visibility in the sector and an over-optimistic FY17 margin target, we believe management should have cut its margin guidance earlier. We cut our 2016-17 and 2017-18 EPS estimates by 12 per cent and 10 per cent, respectively, on expectations of weak earnings delivery from MindTree. Also, the new leadership needs to deliver consistent execution to sustain the premium valuations seen over last three years.”

Religare Institutional Research further added that the guidance cut should have been announced with Q1 results. The brokerage house also believes Mindtree’s revenue outlook is optimistic and could see a downward revision.

On Tuesday, shares of MindTree were trading 6.74 per cen down at Rs 512.85 (at 11.42 am). The scrip opened the day at Rs 525 and has touched a high and low of Rs 525 and Rs 507, respectively, in trade so far. Benchmark BSE Sensex was trading 280.25 points up at 28,812.36.

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