Mindtree Q4 preview: Commentary on L&T's takeover bid, growth guidance key

EBIT margin of the company is expected to decline 140 bps QoQ to 12.2 per cent while EBITDA margin is seen falling 139 bps to 14.5 per cent, say analysts at Prabhudas Lilladher.

Mindtree, the midcap IT company, is slated to unveil its March quarter results of the financial year 2018-19 (4QFY19) on Wednesday. The firm is expected to deliver steady revenue growth; however, EBIT margin may see some pressure due to an increase in investments in digital talents. Management commentary on the ongoing tussle between Larsen & Toubro and Mindtree’s promoters will be be closely tracked.

The Bengaluru-headquartered IT services firm is expected to post revenue growth in constant currency (CC) terms between 2.6 and 3.2 per cent on quarter-on-quarter (QoQ) basis. Analysts at Nirmal Bang Securities say, "We have factored in 2.6 per cent QoQ CC revenue growth and nearly 10 basis points (bps) cross-currency headwind, which will result in 2.7 per cent growth in US dollar terms." 

Analysts at Centrum Broking sees the cross currency tailwind of 50 bps.

The brokerage expects its USD revenues to grow by 17.8 per cent in FY19E, "which would put Mindtree among the fastest growing midcap IT Services companies."

EBIT (earnings before interest and tax) margin of the company is expected to decline 140 bps QoQ to 12.2 per cent while EBITDA (earnings before interest, tax, depreciation, and amortization) margin is seen falling 139 bps to 14.5 per cent, say analysts at Prabhudas Lilladher. 

Nirmal Bang Securities pegs the company's net profit (PAT) at Rs 210.5 crore, up 10.1 per cent QoQ and 15.6 per cent on year-on-year (YoY) basis. 

Key monitorables include management commentary on L&T takeover bid, momentum in revenue growth in the top account (Microsoft) and new deal wins. Mindtree had raised red flags on demand because of Brexit and other macro factors, hence, it needs to see if, indeed, they had an impact.

At the bourses, Mindtree has underperformed the S&P BSE IT index as well as the benchmark S&P BSE Sensex. Shares of the company have risen 12.69 per cent in the last one year (as of Monday's close), whereas the benchmark S&P BSE IT index has jumped 23 per cent. The S&P BSE Sensex has gained over 13 per cent during the period.

Entity	CMP (April 15, 2019)	CMP (April 16, 2018)	% change
S&P Bse IT	15582.88	12682.37	22.87
S&P Bse Sensex	38905.84	34305.43	13.41
Mindtree Ltd.	978.05	867.95	12.69

(Source: ACE Equity)