“As we continue to grow revenue, our sharp focus on driving profitable growth has resulted in expansion of operating margin by 2.6 per cent,” said Debashis Chatterjee, chief executive officer and managing director, Mindtree.
“We continue to execute our growth strategy, proactively incubate deals by mining strategic clients and nurture a learning-led culture.” Operating margin of the IT firm stood at 15.9 per cent in Q3.
"Strong growth at top account ( over 26 per cent YoY) and better-than-expected operational optimization assuage concerns about ownership and management transition... We see headroom for further utilization improvement, pyramid correction, and reduction in sales intensity. However, the impact of this should be offset by correction in higher yields (vs peers)," wrote analysts at Motilal Oswal Financial Services in an earnings review note. The brokerage has a "neutral" rating on the stock with a target price of Rs 985.
Besides, hitech and media, among verticals, grew 15 per cent on YoY basis, and BFSI (banking, financial services and insurance) rose 7.7 per cent during the quarter. Digital business (38.2 per cent of rev) decelerated to +2.1/13.6 per cent QoQ/YoY as growth from data, engineering services and cloud services was offset by decline in Interactive (project heavy). Deal wins were soft with TCV at USD 207mn, -19 per cent YoY and at a multi-period low book-to-bill on deferral in decision cycles. Attrition also inched up to 17.2 per cent (vs. 16.5% in 2Q), even as the transition is stabilising.
"While Mindtree has navigated the leadership transition, ‘broad-based’ and sustainable growth profile may take slightly longer as the company undergoes the shift from project-heavy (front-end digital) into longer duration annuity deals. Near term performance will exhibit modest revenue growth (vs. peers) and improving operating profile." said analysts at HDFC Securities. They estimate USD rev/EPS at 10/13 per cent CAGR over FY19-22E factoring USD rev growth of 8.9/10.3/11.5 per cent and EBIT% of 10.0/12.1/13.7% for FY20/21/22E. The brokerage, too, has a "neutral" rating on the stock.