MOSL: MINDTREE (Neutral)-Operationally in line-guides for low-teens revenue growth in FY20
MINDTREE: Operationally in line; guides for low-teens revenue growth in FY20
(MTCL IN, Mkt Cap USD2.3b, CMP INR972, TP INR1000, 3% Upside, Neutral)
- Exits the year with strong revenue and sluggish margin momentum: In FY19, MTCL grew its constant currency (CC) revenue by 19.2% YoY, accelerating by over 2x from 9.3% YoY growth in FY18. EBITDA margin expanded 160bp YoY to 15.2% in FY19, driving EBITDA growth of 44% YoY. Adj. net income, thus, grew 55% YoY. MTCL announced a total dividend of INR33/share, taking its payout to 72% of FY19 earnings. For 4QFY19, MTCL’s revenue growth of 3.9% QoQ CC (+17.9% YoY CC) was marginally ahead of our estimate of +3.1%. EBITDA margin shrank 70bp QoQ to 15.2% (in line) in the quarter. PAT increased 15% QoQ (+17% YoY) to INR1.98b, marginally ahead of our estimate of INR1.91b.
- Outlook for low-teens growth in FY20: MTCL guided for deceleration in revenue growth to low-teens in FY20 from 19% in FY19, in line with our growth outlook of 12%. Our estimate also follows the trend in MTCL’s book-to-bill in the recent past. Total contract value (TCV) of deals won by MTCL stood at USD1,075m in FY19 (+6.3% YoY). We believe this is partly offset by net new deals, TCV of which is up 17% v/s renewals TCV at 3%; and secondly, less-than 1-year deals are up 10%, implying potential shortening of average duration (and hence, quicker conversion to revenues). MTCL expects margin expansion of 100-120bp in FY20, led by levers from: [1] operational efficiencies such as employee pyramid, [2] better pricing in Digital-led growth environment and [3] identifying wastage that can be pruned further.
- Developments on open offer by L&T: MTCL has examined the legal aspects and asked the SEBI for clarification, which will shed further light on the developments on that front. There have not been any touch points with L&T at this stage. MTCL Board had formed a panel to assess the offer by L&T, and the deadline for submitting their recommendations is before the open offer commences.
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