Emkay Global Financial's report on Mindtree
Mindtree’s Sep’20 quarter revenues grew 3.1% QoQ to US$261mn (2.1% cc), lower than consensus expectations, though margins remained strong driven by better operating efficiencies. Net profit beat consensus estimates on better EBITM and forex gain. After a sharp revenue decline in Q1, revenue recovery was slower but broad-based in Q2 led by Retail, CPG & Manufacturing (7.7% QoQ), Travel & Hospitality (5.7% QoQ) and BFSI (3.5% QoQ). Hi-Tech & Media were flat QoQ. Geographically, all markets apart from Asia Pacific (-6.1% qoq) grew sequentially. Deal wins remained weak in Q2 at US$303mn (US$391mn in Q1FY21/US$307mn in Q2FY20). Although Q3 is a seasonally weak quarter; management hopes to maintain revenue growth momentum and sustain operating margins at current levels.
MTCL's revenue performance was skewed, with the top client driving incremental revenue. We expect a steady performance in the top client, however, increased concentration and growth dependency remain a concern. Given skewed revenue growth and rich valuations, we assume coverage on MTCL with Sell and a TP of Rs1,330 at 20x Sep’22E earnings.
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