Mindtree dips 6% on profit booking post December quarter results

As the key positives are already captured, brokerage firm Motilal Oswal Financial Services sees limited upside for the stock hereafter.

Shares of Mindtree dipped 6 per cent to Rs 4,477.25 on the BSE in Friday’s intra-day trade on profit booking on high valuation after the company reported a strong set of October-December quarter (Q3FY22) numbers both on revenue as well as margins front. At 09:37 am; Mindtree traded 4.5 per cent lower at Rs 4,529.50, as against a 0.28 per cent decline on the S&P BSE Sensex.

Despite today’s fall, in the past six months, the stock has outperformed the market by surging 68 per cent, when compared with a 15 per cent rise in the Sensex. In the last one year, the stock has zoomed 160 per cent, as against a 23 per cent rally in the benchmark index.

In Q3FY22, Mindtree reported a revenue of USD 366 million (+5.2 per cent QoQ CC), driven by broad based growth across verticals and regions. The company reported EBITDA margin expansion of 100 bps QoQ to 21.5 per cent for the quarter. Order book was at US$ 358 million, up 14.6 per cent YoY while cash and investments were at all-time high of US$ 412.7 million.

The management reiterated that the demand environment continues to remain strong, and expects industry leading growth in FY22.

The margin expansion could be attributed 60 bps to operating efficiency and 40 bps to currency tailwind. Margin expansion was a key highlight of the quarter when its large size peers feeling the cost pressures due supply side challenges. The company’s better control on sub costs (it has come down from 11.2 per cent of sales in Q1FY22 to 9.7 per cent of sales in Q3FY22) has been helping margins, ICICI Securities said in a note.

We view continued execution on both revenue growth and profitability as a key positive for the stock. While we expect its topline to remain robust, EBIT margin should start stabilizing due to increased investment after expanding by 540 bps in the last eight quarters, Motilal Financial Services said.

The management’s increased focus on annuity revenue and strategic accounts is reflected in its revenue and client mix. A strong outlook on strategic accounts, decent deal signings, and the ability to sustain improved margin are key positives. The stock is currently trading at 40x FY23E EPS. As the key positives are already captured, we see limited upside hereafter, the brokerage firm said.