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Mindtree tumbles over 11% post September quarter result; brokerages mixed

The operating margin of the L&T Group-owned firm expanded 140 basis points sequentially to 19.6 per cent.
Shares of Mindtree slumped as much as 11.43 per cent to Rs 1,264.25 apiece on the BSE on Friday as the company missed analysts' estimates on the revenue front. Further, softening trends in top clients, too, weighed on the investor sentiment. 

At 10:42 AM, the stock of the company was trading nearly 8 per cent lower at Rs 1315.15 on the BSE against Thursday's close of Rs 1427.55.  In comparison, the benchmark S&P BSE Sensex was quoting 206 points, or 0.52 per cent higher at 39,934 levels. 

For the quarter under review, Mindtree posted a net profit of Rs 253.7 crore, up 87.9 per cent year-on-year (YoY) and 19.1 per cent sequentially. The firm's revenues, however, remained flat at Rs 1,926 crore on a YoY basis and it witnessed a marginal 1 per cent gain sequentially. Analysts at Prabhudas Lilladher had estimated Mindtree's revenue to come in at Rs 2,031.6 crore, up 6.4 per cent QoQ and 6.1 per cent YoY while those at Centrum Broking had projected revenue of Rs 1,944.5 crore, up 1.9 per cent QoQ and 1.6 per cent YoY.  CLICK HERE TO READ FULL REPORT

Further, the company's dollar revenues stood at $261 million, a 3.1 per cent rise in constant currency terms over the previous quarter. The operating margin of the L&T Group-owned firm expanded 140 basis points sequentially to 19.6 per cent, which was higher than Street expectations. 

What brokerages say post Q2 nos?

Downgrading the stock to "Neutral" with the target price of Rs 1,550, Motilal Oswal Financial Services (MOFSL) said that the persistent weakness in the Top 2–10 client bucket (-3.5% QoQ, 8 quarter CQGR of -2%) remains a concern given its 20 per cent contribution to the topline. "Additionally, an unexpected decline in the Top client (-1% QoQ) also chips away at the bull case. High exposure to Travel, Transport, and Hospitality is expected to remain a drag on the overall recovery," the brokerage added in a result review note. 

Emkay Global notes that Mindtree's revenue performance was skewed, with the top client driving incremental revenue. "We expect a steady performance in the top client, however, increased concentration and growth dependency remain a concern. Given skewed revenue growth and rich valuations, the brokerage assumed the coverage on Mindtree with a "Sell" rating and a target price of Rs1,330 at 20x Sep’22E earnings.  The brokerage observed that the company's revenue growth was lower than consensus expectations, though margins remained strong, driven by better operating efficiencies. 

Prabhudas Lilladher, on the other hand, has maintained a "BUY" rating on the stock with the target price of Rs 1,625. It has trimmed its revenue growth estimates by average 1.1 per cent for FY22/23 on account of soft deal wins, but strong margin performance led to earnings per share (EPS) upgrades of 8 per cent / 0.6 per cent for FY22/23E. "We maintain our BUY rating on MTCL as we believe that execution and focus on annuity deals are bringing back stability in revenue and margin performance," it says. That apart, the brokerage notes that Mindtree has a 40 per cent exposure to the fastest-growing hi-tech space, and it believes the worst for TTH (Travel & Hospitality) is behind.

Mindtree’s aim to improve margins via employee pyramid, offshoring, pricing, utilisation, and annuity business bodes well for profit growth, notes ICICI Securities. "Based on these factors, we revise our EPS and multiple upwards and maintain "BUY" with a revised target price of Rs 1,680/share (22x FY23E EPS)," the brokerage said in a result review note. 

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