EUR 120.00 For Business Accounts Only

MOSL: MINDTREE (Buy)-Signs of de-risking dependency on top client

MINDTREE: Signs of de-risking dependency on top client

(MTCL IN, Mkt Cap USD1.9b, CMP INR842, TP INR1000, 19% Upside, Buy)

 

• 3Q revenue and business momentum: MTCL’s 3QFY19 revenue grew 2.4% QoQ in constant currency (18.6% YoY CC), in line with our estimate of +2.6% QoQ. EBITDA margin expanded 50bp QoQ to 15.9%, marginally higher than our estimate of 15.4%. PAT was down 7.3% QoQ to INR1,912m, as against our estimate of a 28% QoQ decline, primarily due to lower ETR (14% v/s our estimate of 26.5%, adjusting for which, PAT was INR1722m) triggered by the reversal of INR190m under the Scheme of Amalgamation post Magnet360’s merger into the company. For 9MFY19, revenue grew 19.7% YoY CC, while EBITDA/PAT increased 55.3%/68% YoY.
• 4Q outlook hints at a strong exit: MTCL cited that it expects 4Q revenue growth to come in marginally better than that in 3Q. A 3% QoQ CC revenue growth would imply YoY CC growth of 17% and FY19 CC growth of 19%. It expects margins to be comparable to that in 3Q.
• Retail/CPG/Manufacturing back after 2Q blip: 3QFY19 growth was led by Retail/CPG/Manufacturing (+4.9% QoQ) after it dragged the 2Q performance with a 4.2% QoQ decline. BFSI was soft (-1.1% QoQ) due to weakness in one client and 3Q seasonality. Growth is expected to return in BFSI in 4Q, led by a deal with an insurance provider in the Middle East. Top 2-5 clients grew 3.6% QoQ, while top 6-10 declined 4.4% QoQ as one BFSI client slipped out of top 10.