Mindtree gains 1% ahead of Q1 nos; here's what to expect from the IT firm

Debashis Chatterjee, MD & CEO, Mindtree
Shares of Mindtree were trading 1 per cent higher on the BSE on Tuesday at Rs 1,022 levels ahead of its June quarter results for the financial year 2020-21 (Q1FY21) due later in the day. In comparison, the S&P BSE IT index was 0.4 per cent up at 16,057 levels. The benchmark S&P BSE Sensex was trading nearly 1 per cent lower at 36,337 points. 

For the quarter under review, Mindtree, according to analysts, is expected to post up to 8 per cent decline in its US dollar revenues on a sequential basis. The fall in revenues will be led by softness in Travel and Hospitality vertical owing to travel bans imposed by governments to contain the spread of Covid-19 pandemic. It must be noted that Travel and Hospitality vertical contributes nearly 16 per cent to Mindtree's total revenues. That said, the company's earnings before interest and tax (EBIT) margin is expected to remain stable due to the absence of one-time expense of contribution to PM Cares fund, analysts say.

ICICI Securities expects Mindtree's revenue in the US dollar terms to decline 7.5 per cent quarter-on-quarter (QoQ) due to softness in Travel vertical and discretionary revenues. In rupee terms, revenues are expected to decline 4.8 per cent QoQ to Rs 1,952 crore. On a year-on-year (YoY) basis, the numbers are seen growing 6.4 per cent. EBITDA is seen at Rs 326 crore, up 77.1 per cent YoY and 0.7 per cent QoQ. Net profit or profit after tax (PAT) is expected to stay flat at Rs 206.3 crore on a sequential basis. On a year-on-year basis, the profit is seen surging 122.5 per cent. 

"We expect margins to improve 90 basis points (bps) QoQ due to the absence of one-time expense of contribution to PM Cares fund (~100 bps). Adjusting for one-time expenses in the previous quarter, the company will report flat margins QoQ to 16.7 per cent. On a YoY basis, the EBITDA margin is optically higher by 670 bps due to the absence of one-time compensation cost (260 bps) & visa cost (30 bps), deferral of wage hikes (190 bps) and low base," the company said in the result preview note.

Centrum Broking expects Mindtree's US dollar revenues to decline by 8 per cent QoQ and 3.1 per cent YoY at $256.1 million. However, it expects steady traction in Mindtree’s top account (24.8 per cent of total revenues) owing to demand for Collaboration platforms etc. Overall, Hitech and Media vertical (43 per cent of total revenues) could show sequential growth, it says. 

Net sales (revenues) in rupee terms is estimated at Rs 1,933.8 crore, down 5.7 per cent QoQ and up 5.4 per cent YoY. EBIT margin is expected to rise 102 bps QoQ and 711 bps YoY at 13.5 per cent. Net profit is estimated at Rs 198.5 crore, down 3.7 per cent QoQ and 114.1 per cent YoY. 

Growth outlook of the top client, margin outlook, the management strategy for the next two years, outlook on T10 accounts and pricing and renewal commercials/ Days Sales Outstanding (DSO) situation with large accounts are some of the key things to watch out for.

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