Mindtree surges over 2.50% ahead of Q2 nos; here's what to expect

Shares of Mindtree, the mid-tier IT services company, surged as much as 2.57 per cent to Rs 744 apiece on the BSE in the intra-day deals on Wednesday. The company is slated to announce its September quarter results for the financial year 2019-20 (FY20) later in the day. 

At 10:05 am, the stock was trading Rs 733.50 apiece on the BSE, up over 1 per cent. The S&P BSE Sensex, on the other hand, was ruling at 38,543.66 levels, up 38 points or 0.10 per cent. 

As per analysts, FY20 is likely to remain a softer year for midcap IT on US dollar revenue growth (vs FY19 on revenue growth front). "Midcap vendors (L&T Infotech, Mindtree, NIIT Tech ) could deliver 10-13 per cent US dollar revenue growth for FY20 (vs 17-19 per cent delivered in FY19). However, valuations are reasonable with LTI and Mindtree trading at 16/13.8x FY21E EPS.NIIT Tech is trading at 15.2x FY21E EPS," wrote analysts at Centrum Broking.

The brokerage firm expects Mindtree’s US dollar revenues to grow by 2.5 per cent QoQ in Q2FY20 to $270.8 million. On year-on-year (YoY) basis, the numbers are likely to rise 9.9 per cent. In rupee terms, revenue is likely to come in at Rs 1,906.5 crore, up 3.9 per cent QoQ and 8.6 per cent YoY. EBIT (Earnings before interest and tax) is expected to jump 62.7 per cent sequentially to Rs 190.6 crore but slip 17 per cent on YoY basis. 

"We model EBIT margin at 10 per cent, up 60bps QoQ on Adjusted 1QFY20 EBIT margin and 360bps QoQ on reported 1QFY20 EBIT margin," Centrum Broking said. Wage hikes to senior resources would be the key margin headwind for the quarter which would be negated by tailwind from absence of visa expenses. Traction under the new CEO would be watched, it said. 

HDFC Securities sees Mindtree’s 2Q revenue at $270 million, up 2.2 per cent QoQ and 9.6 per cent YoY impacted by deceleration in top account. In rupee terms, revenue is expected at Rs 1,904 crore, up 3.8 per cent QoQ and 8.5 per cent YoY. EBIT margin is estimated at 9.3 per cent, up 286 basis points. Adjusted profit after tax (APAT) is estimated at Rs 134 crore, up 4.8 per cent QoQ and down 35.1 per cent YoY. 

Outlook of revenue from top account (impacted by budget cuts) and outlook of BFS vertical (high client concentration within the vertical), Digital revenue (38.9 per cent of revenue) performance and commentary on large deal go-to-market strategy with Mindtree, synergies from recent acquisitions (N+P and Ruletronics) and attrition level (trending high) are the key things investors should watch out for. 

Besides, commentary on sourcing strategy of large accounts following changes in leadership and 3Q expectation of large deal ramp-up in Manufacturing, Insurance deals are also important monitorables.

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