Mindtree’s shares lost nearly 3 percent intraday on Friday as investors flagged concerns over the company’s tepid earnings for the December quarter. The mid-sized IT firm’s dollar revenues saw a decline of 0.4 percent quarter on quarter (QoQ) to USD 192.2 million, while the rupee revenue also showed a decline of 0.1 percent (QoQ) to Rs 1,295.3 crore. Overall, it posted a net profit of Rs 103.1 crore, a rise of 8.8 percent QoQ. Even as the company reported unimpressive numbers, it registered a whopping 70 percent jump QoQ in order wins in the given quarter to USD 314 million, with fresh additions of around USD 144 million. The company’s management stated in an earnings call that the effect of these deals will only start reflecting from the next financial year. It also said that a clarity on budgets of its clients would only be possible in a couple of months and is likely to see some volatility in its top accounts. Meanwhile, the revenue growth will be flat in the last quarter of this financial year with stable margins the management said. Brokerages too have raised concerns over the management’s commentary on flat growth as well as the challenges around clientele and their orders. Morgan Stanley said that the flat growth commentary was lower than its initial expectations as the number of billable days were higher in the next fourth quarter of the current financial year. “Given limited clarity on budgets and continued volatility in top accounts, we believe current consensus estimates have risks that are skewed to the downside,” the brokerage said in its earnings review report. The brokerage has maintained an underweight stance on the stock. Kotak Institutional Equities has flagged issues relating to moderate execution of the orders, which will affect profitability of the company. Its profitability estimates are lower than management expectations as it is accounting for the back-ended nature of profitability of large deals signed recently as well as the execution that requires an improvement. Kotak has maintained its reduce rating with a revised target price of Rs 490. Macquarie, too, has blamed slow pick up in execution of deal wins and headwinds in margins. In fact, the brokerage is now preferring large caps over mid-caps on the back of volatile macro environment. It retained an accumulate rating with an unchanged target price of Rs 560.Credit Suisse and Citi Research have raised issues on the valuations front. “FY18E P/E multiple of 15x is not attractive in context to where its larger peers trade, especially given the high client concentration,” the former said in its report. Citi Research, on the other hand, has highlighted the slow growth pick up in companies across the sector despite improvement in deal wins. Valuations at 14.7X FY18E does not offer much comfort in this context, it added. furthermore, it has maintained a cautious stance on the Indian IT sector. The stock has shown weak movements after having lost close to 10 percent in the past 15 days. At 15:59 hrs Mindtree was quoting at Rs 474.85, down Rs 10.00, or 2.06 percent.
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