MOSL: MINDTREE (Neutral)-In-line operating performance-outlook for gradual recovery

​MindTree: In-line operating performance; outlook for gradual recovery

(MTCL IN, Mkt Cap USD1.3b, CMP INR507, TP INR480, 5% Downside, Neutral)

• Adjusted profitability marginally ahead: MTCL's 2Q revenue growth of 2.1% QoQ CC (est. of +2.2%) and dollar revenue growth of 3% QoQ to USD206m (est. of USD207m) were in line with our expectations. EBITDA margin expanded 50bp QoQ to 11.6% (est. of 11.8%), but was 12.6% excluding one-time restructuring expense in Europe. PAT, however, was INR1.25b, ahead of our estimate of INR1.09b, mainly due to write-back of INR303m liability for Bluefin earn-out, which boosted other income to INR598m (est. of INR360m).
• Growth stars - Bluefin, RIMS: Revenue from Bluefin grew 22% QoQ (partly aided by appreciation of GBP), and the segment also turned a profit during the quarter. IMS too grew 6.6% QoQ, continuing its strong traction, and Digital grew 3.6% QoQ (13.8% YoY). US was flat due to a decline in Magnet360 subsidiary - which was weak for second consecutive quarter.
• Outlook for a sanguine 2H: With deals ramping up and pipeline up 20%+ over the previous quarter, MTCL retained its outlook of high-single-digit dollar revenue growth for FY18, which implies a steady 2H at the very least, despite the weak seasonality. It also expects profitability to continue inching up on the base of reported margins of 2Q.