Mindtree’s Mar’17 quarter results are comforting after the modest disappointments at Tier I peers Infosys and TCS. Mindtree reported a 1.8% QoQ US$ revenue growth with ~70 bps sequential improvement in EBIT margins, continuing the progression on our ‘Improvement in operational performance’ thesis in the Mar’17 quarter. Net profits although were a little low but were impacted adversely by significant forex losses of ~Rs 228 mn( we had not factored forex losses in our estimates)
Apart from headline numbers, we find more comfort in the revenue performance within top clients( top 2-5 client revenues grew by 4.3% QoQ in the current quarter building on the 2.1% QoQ growth seen in Dec’16 quarter and on the back of sharp declines in the quarters prior to that). Additionally, revenue performance from developed markets is comforting. Overall Deal wins during the quarter at US$ 209 mn is lower than the significant wins reported in Dec’16 quarter, however is still healthy.
We await management commentary on growth and margins for FY18 (in the wake of currency appreciation and company’s higher margin sensitivity to currency). We currently have an ACCUMULATE rating on the stock with a TP of Rs 560.
Mar’17 quarter results
- Mindtree reported revenues at US$ 195.6 mn (1.8% QoQ, +6.1%YoY), higher than our expectations of 0.8% QoQ US$ revenue growth. Constant currency revenue growth was 2% QoQ ( V/s our expectations of 1.3% QoQ c.c revenue growth)
- EBIT margins at 10.6%, improved by 70bps QoQ, though down ~420 bps YoY were ahead of our expectation of flat margins helped largely by better revenue performance and tight SG&A control( SG&A costs have declined in absolute terms for the 3rd quarter in a row)
- Profits at Rs 972 mn (-5.7% QoQ, -35% YoY) is lower than our expectations despite reasonable operational beat due to forex losses of Rs 228 mn ( V/s gains of Rs 32 mn in Dec’16 quarter, we note that we had not pencilled in any forex losses in our estimates)
Other operating metrics
- Onsite volumes: 6.1% QoQ/9.1% YoY
- Offshore volumes: 1%QoQ/-3% YoY
- Utilization( including trainees): 70.9%, down 40 bps QoQ
- Headcount: up 371 people QoQ
- LTM reported attrition at 15.1%( down 100 bps QoQ).Qtrly Annualized Attrition has reduced to 13.3%, down 130 bps QoQ
Growth by Geographies (All in US$ terms)
- US:+3.4% QoQ
- Europe: +1.8% QoQ
- India:-8.1% QoQ
- APAC:-9.2% QoQ
Growth by Verticals (All in US$ terms)
- Manufacturing: -2.9% QoQ
- BFSI: 4.3% QoQ
- Travel and Hospitality: +0.4% QoQ
- Hi tech:4% QoQ
Growth by clients (All in US$ terms)
- Top client: 3.2% QoQ
- Top 5 clients: 3.8% QoQ. Top 2-5 client revenues have grown by 4.3% QoQ after very sharp declines through the 1st 3 quarters of CY16 and a 2.1% QoQ growth in Dec’16 quarter
- Top 10 clients: 0.8% QoQ
- Non Top 10 clients: 2.5% QoQ
Mindtree Mar’17 quarter result summary
|
In Rs mn
|
Q4FY17A
|
Q3FY17
|
QoQ (%)
|
Q4FY16
|
YoY(%)
|
Q4FY17E
|
|
Revenues(US$ mn)
|
195.6
|
192.2
|
1.8
|
184.4
|
6.1
|
193.7
|
|
Net sales
|
13,181
|
12,953
|
1.8
|
12,145
|
8.5
|
13,074
|
|
Total Income
|
13,181
|
12,953
|
12,145
|
13,074
|
||
|
Operating expenses
|
11,312
|
11,213
|
9,998
|
11,325
|
||
|
EBITDA
|
1,869
|
1,740
|
7.4
|
2,147
|
-12.9
|
1,748
|
|
Margins (%)
|
14.2
|
13.4
|
70
|
17.7
|
-350
|
13.4
|
|
Depreciation
|
468
|
459
|
345
|
469
|
||
|
EBIT
|
1,401
|
1,281
|
9.4
|
1,802
|
-22.3
|
1,279
|
|
Margins (%)
|
10.6
|
9.9
|
74
|
14.8
|
9.8
|
|
|
Interest Paid
|
47
|
46
|
0
|
0
|
||
|
Other income
|
-95
|
144
|
147
|
75
|
||
|
Pre-tax profit
|
1,353
|
1,471
|
1,949
|
1,354
|
||
|
Tax provided
|
287
|
348
|
440
|
325
|
||
|
Profit after tax
|
1,066
|
1,123
|
-5.1
|
1,509
|
1,029
|
|
|
Emkay Net profit
|
972
|
1,031
|
-5.7
|
1,509
|
-35.6
|
1,029
|
|
EPS (Rs)
|
5.8
|
6.1
|
|
8.9
|
|
6.1
|
Source: Company, Emkay Research
