Mindtree (HOLD, CMP 506, TP Rs 555) Mar’17 quarter results: Revenues growth impacted by weak pricing, OPM declines by 130bps qoq, One-time reversal lifts PAT
MIndtree’s reported CC revenue growth of 1.2% at US$ 200mn. Volume growth was robust at 3.7% qoq ahead of our estimate (2.7% growth) but was negated by sharp decline in realizations both on pricing decline and offshore shift. EBIT margins declined by ~130 bps qoq to 11.1% as against our estimates of 60bps decline. Profits grew by 25% qoq (Adjusted PAT declined by 3.5% qoq) adjusting for one-time gains from a reversal of a contingent charge which was provided for to the tune of Rs374mn.
While the data on deal traction across traditional/Digital continue to remain strong the same is not reflected in the overall performance of the company in current quarter and recent past. Digital accounts for 41% of deal addition in the quarter and accounts for 42.3% of the revenues.
We await more commentary on near term revenue performance and growth prospects on Digital business and strong recovery in offshore volumes. We currently have an HOLD rating on the stock with a TP of Rs 555. At CMP of Rs 506, stock trades at ~15.9x/12.2x FY18/19E EPS of ~Rs32/Rs41.5 respectively.
Mar’17 quarter results
- Mindtree reported revenues at US$ 200 mn (2.3% qoq, 0.6%yoy), inline with our expectations of 2.9% qoq revenue growth. Constant currency revenue growth was 1.2% qoq ( V/s our expectations of 2.7% qoq c.c revenue growth)
- EBIT margins at 11.1%, declined by 130bps qoq (reported basis decline of 310bps as Fx loss is now clubbed in operating cost), and is well below our estimate of 60bps decline despite favourable delivery mix.
- Profits at Rs 1,217 mn (+25% qoq, -1.5% yoy)
- Adjusted PAT declined by 3.5% qoq compared for our estimate of 3% growth for the quarter.
Other operating metrics
- Onsite volumes: -1.2% qoq/2.6% yoy
- Offshore volumes: 5.2%qoq/0.5% yoy
- Utilization( including trainees): 73.2%, up 230 bps qoq
- Headcount: net add of 90 people QoQ
Growth by Geographies (All in US$ terms)
- US:+2% qoq
- Europe: 3.8% qoq
Growth by Verticals (All in US$ terms)
- Manufacturing: 1% qoq
- BFSI: 4% qoq
- Travel and Hospitality: -1.8% qoq
- Hi tech:3.4% qoq
Mindtree Mar’17 quarter result summary
|
In Rs mn
|
Q1FY18A
|
Q4FY17
|
QoQ (%)
|
Q1FY17
|
YoY(%)
|
Q1FY18E
|
|
Revenues(US$ mn)
|
200.1
|
195.6
|
2.3
|
199.0
|
0.6
|
202.8
|
|
Net sales
|
12895.0
|
13,181
|
-2.2
|
13,276
|
-2.9
|
13,789
|
|
Total Income
|
12,895
|
13,181
|
13,276
|
13,789
|
||
|
Operating expenses*
|
11,460
|
11,312
|
11,325
|
11,920
|
||
|
EBITDA
|
1,435
|
1,869
|
-23.2
|
1,951
|
-26.4
|
1,869
|
|
Margins (%)
|
11.1
|
14.2
|
-310
|
14.7
|
-360
|
13.6
|
|
Depreciation
|
459
|
468
|
468
|
488
|
||
|
EBIT
|
976
|
1,401
|
-30.3
|
1,483
|
-34.2
|
1,381
|
|
Margins (%)
|
7.6
|
10.6
|
-306
|
11.2
|
10.0
|
|
|
Interest Paid
|
0
|
|||||
|
Other income#
|
614
|
-142
|
147
|
130
|
||
|
Pre-tax profit
|
1,590
|
1,259
|
1,630
|
1,511
|
||
|
Tax provided
|
373
|
287
|
395
|
378
|
||
|
Profit after tax
|
1,217
|
972
|
25.2
|
1,235
|
1,134
|
|
|
Emkay Net profit
|
937
|
972
|
-3.6
|
1,235
|
-24.1
|
1,134
|
|
EPS (Rs)
|
7.2
|
5.8
|
|
7.4
|
|
6.7
|
*Current quarter Fx changes has been adjusted in the operating expenses and thus operating profits are not comparable
# Other income includes one time gains on reversal of a charge of about Rs374mn.
Source: Company, Emkay Research