Software services provider Mindtree’ stock gained 8% Monday following the impressive performance in March quarter.
Mindtree, a part of the L&T group, on Friday reported a 3.9% on year growth in its standalone net profit to Rs 206.2 crore for the fourth quarter-ended March 31. Revenue for the period rose 11.5% to Rs 2,050.5 crore.
During the financial year FY20, Mindtree’s net profit fell 16.3% to Rs 630.8 crore. For the period, the revenue had grown 10.6% to Rs 7,764.3 crore.
Mindtree surprised positively on margin performance, with adjusted Ebit margins improving to 14.8%, reflecting disciplined execution under the new leadership in H2FY20 and aided by a curtailment of sales, general administration staff (expenses) as well
The company reported a 1.9% sequential constant currency revenue growth and 1.5 percentage-points expansion in operating profit margins, despite business disruption by covid-19 and notable slowdown in travel and hospitality business. Volume growth was also strong (up 4.1%) and deal wins at $393 million are highest in recent quarters.
Volume growth was also strong (up 4.1%) and deal wins at $393 million are highest in recent quarters.
Management sees demand slowdown in near term. Looking ahead to fiscal 2021, we anticipate softness in demand due to the unprecedented COVID-19 pandemic.
Also client and service vertical metrics reveal a lopsided growth. Much of the incremental growth is driven by the top client and hi-tech and media business vertical. Top client now generates almost a fourth of Mindtree’s revenues-24.8% in Q4. In the year ago this client generated a little less than a fifth of Mindtree’s revenues (19.8%).
Similarly, contribution of hi-tech and media rose from less than 40% in the year ago and 41.5% in December to 43.1% last quarter. Except hi-tech and media, all business verticals sequential fall in revenues. Geography wise only the US clocked growth.
Still, expectations remain upbeat. Management expects the recently to ramp-up the recently-won deals, albeit at a slower pace.
Importantly it expects the top client to keep-up the revenue momentum. The company’s high exposure to hi-tech and media (generates 43% of revenues) and digital expertise is seen as good hedges against the current pressure on traditional businesses.
Also traction at top client is driven by new technologies, demand for which is accelerated by covid-19 disruption.
Net net we believe that the markets would closely watch the company’s performance during the next 2 quarters ahead as it has a large exposure to the Travel and Hospitality sectors which afrev facing rough headwinds. Although the company management has given a cautious stance and does not expect business to suffer, we believe that the extended lockdown globally could impact business and margins going ahead.
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