Mindtree plunges 10% as Q1 profit halves; stock hits fresh 52-week low

Shares of Mindtree plunged 10 per cent to Rs 675, also its fresh 52-week low, in Thursday's early morning trade on the BSE, after the company’s consolidated net profit more than halved to Rs 93 crore in June quarter (Q1FY20), as compared to previous quarter. It had reported a profit of Rs 198 crore in the March quarter (Q4FY19).

The IT consulting & software company's operational revenue declined 0.3 per cent to Rs 1,834 crore from Rs 1,839 crore. On constant currency (CC) term, revenue grew 1.1 per cent on sequential basis.

Earnings before interest, tax, depreciation and amortization (Ebitda) margin contracted 520 bps to 10 per cent from 15.2 per cent in previous quarter. Reported Ebit margins at 6.4 per cent contracted 650bps QoQ, the lowest level since 3QFY11.

“This included a one-time special award to employees to mark Mindtree’s 20th anniversary – excluding which, its margin declined by 392bps (significantly 209bps below our estimate) on regular wage hike impact, INR appreciation, higher visa cost and higher depreciation owing to adoption of Ind AS 116,” analysts at Reliance Securities said in result update.

With new promoter Larsen & Toubro (L&T) taking charge, Mindtree’s senior management team has resigned. Despite healthy deal wins during the quarter, steeper-than-expected margin contraction indicates a lackadaisical beginning of the fiscal.

Even factoring in improved performance from Q2FY20E onwards, we believe Mindtree is unlikely to achieve over 11-12 per cent USD revenue growth, which is a comedown from the ‘low teens growth’ the IT firm had alluded to at the end of Q4FY19. Until we see further clarity on these developments, and stability in terms of personnel and attrition, the stock is likely to trend flat-to-downwards, in our view, the brokerage firm said.

Meanwhile, Mindtree has appointed L&T chief AM Naik as non-executive chairman.

“The Nomination and Remuneration Committee and the Board of Directors of the Company at their meeting held on July 17, 2019, have appointed Mr Anilkumar Manibhai Naik as the Non-Executive Chairman of the Company with effect from July 18, 2019,” Mindtree said in a BSE filing.

At 10:23 am, the stock had partially recovered from early morning losses and was trading 7 per cent lower at Rs 703 on the BSE, as compared to 0.09 per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped four-fold with a combined 6.98 million shares changed hands on the NSE and BSE so far.

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