Mindtree Rating ‘Buy’; Solid set of numbers in Q4FY21

Mindtree (MTCL) delivered a solid set of Q4FY21 numbers—revenue grew 5.2% q-o-q to $288.2 mn, in line with our estimate of $289.0 mn. Ebit margin came at 18.6% versus our 19.0% forecast. Net profit dipped 2.8% q-o-q to Rs 3.2 bn, but still outclassed Street’s estimate. Deal wins were strong at $375 mn.

Pipeline continues to remain robust with a good mix of annuity deals. Management remains confident of delivering double-digit growth along with Ebitda margin of 20% plus in FY22. Given the strong demand environment and impressive execution, maintain Buy with an unchanged TP of Rs 2,821 (35x Q2 FY23E) as we roll over to Q2FY23E.

Picking up pace: After slow growth in H1FY21, MTCL has delivered successive quarters of strong growth. The company ended FY21 with a revenue decline of 1.1% (up 8.1%, ex-TTH). In Q4FY21, amongst verticals, only BFSI saw a marginal dip q-o-q. Travel & Hospitality and Retail, CPG & Manufacturing, which were hit the hardest at the start of Covid-19, posted strong sequential growth of 16.1% and 8.6% q-o-q, respectively. All geographies clocked q-o-q revenue growth. The company recommended a dividend of Rs 17.5 in Q4FY21 (FY21 dividend: Rs 25).

Execution remains strong; well positioned in upcycle: Reported Ebitda margin was at 21.9%, down 120bps q-o-q. The decline was primarily due to the wage hike (240bps) and forex headwinds (50bps), offset by tailwinds from revenue growth and operational efficiencies (170bps). MTCL’s 4*4*4 strategy, which focuses on specific industry groups, service lines and geographies, appears to be striking the right notes with improvements in specifics. MTCL appears to be strongly positioned to capitalise on this strong technology wave, in our view.

Outlook: Momentum to sustain – We remain convinced of MTCL’s long-term prospects given its razor-sharp focus on growth and execution. We reiterate that it is likely to be a major beneficiary of the current upcycle. The stock trades at 26.2x FY22E. We maintain ‘BUY/SO’.