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Mindtree Q4 preview: Commentary on Travel biz, growth outlook for FY21 eyed

"We expect strong total contract value (TCV) of deals in the quarter," said Kotak Securities.
Mindtree is slated to announce its March quarter results for the financial year 2019-20 (Q4FY20) on Friday. The mid-tier information technology (IT) services company is expected to take a hit on most of its verticals due to disruptions caused by Covid-19. However, analysts expect a higher impact on the company's Travel and Hospitality vertical, which constitutes over 16 per cent of total revenues, due to travel bans and restrictions.

Centrum Broking expects Mindtree's US dollar revenues to grow 1 per cent quarter-on-quarter (QoQ) and 6 per cent year-on-year (YoY) at $278 million. In rupee terms, revenue is expected to grow 3.2 per cent QoQ and 10.3 per cent YoY at Rs 2,029 crore. Earnings before interest and tax (EBIT) is estimated at Rs 251.6 crore, up 6.4 per cent QoQ and 5.9 per cent YoY while EBIT margin is projected at 12.4 per cent, up 40 bps QoQ and down 50 bps on YoY basis. Net profit is expected to decline by 1.8 per cent YoY at Rs 194.8 crore.

"With increased using of Microsoft collaboration products owing to Covid-19, Mindtree could benefit from incremental support work," the brokerage said in its earnings preview note.

ICICI Securities expects dollar revenues to grow 0.6 per cent QoQ to $277 million. Rupee revenue may grow 2.1 per cent QoQ to Rs 2,006 crore. On YoY basis, the numbers are seen improving 9.1 per cent. EBITDA is seen at Rs 319 crore, up 13.8 per cent YoY and 4.1 per cent QoQ. PAT is expected to decline 2 per cent YoY and 1.4 per cent QoQ at Rs 194.2 crore.

EBITDA margins may expand 30 bps QoQ to 15.9 per cent in the quarter mainly led by pyramid rationalisation model, higher offshoring, and currency benefit, it said.

Client mining opportunity and order pipeline, commentary on travel vertical, outlook on a possible merger with Larsen & Toubro Infotech (LTI), and revenue growth and outlook for FY21E are some of the key things to watch out for in the results announcement.

Kotak Securities expects constant currency revenue growth of 1.1 per cent on a sequential basis with a cross-currency headwind of 40 bps. "Minimal or no exposure to BPO would have likely helped Mindtree to better manage the supply disruption due to the lockdown," the brokerage said. It expects EBIT margin improvement of 91 bps (QoQ) to 16.5 per cent, led by cost rationalisation, a pullback in discretionary investments, and a higher offshore mix. Rupee depreciation will provide 50 bps benefit.

"We expect strong total contract value (TCV) of deals in the quarter. TCV of deal win with Realogy is the highest for the company till date. Philips deal has likely not been concluded and not be a part of the deal wins in the quarter," the brokerage added.

During the March quarter, the stock of the company rose 2 per cent as against  28.65 per cent slide in the benchmark S&P BSE Sensex.



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