Mindtree drops 6% on profit booking after December quarter results

Mindtree shares fell 6% to 4,477.25 rupees on BSE in intraday trading on Friday on profit booking at a high valuation after the company reported a strong October quarter data streak to December (Q3FY22) on both revenue and margins. At 09:37; Mindtree traded down 4.5% to Rs 4,529.50, against a 0.28% drop on the S&P BSE Sensex.

Despite today’s drop, over the past six months the stock has outperformed the market jumping 68% against a 15% rise in the Sensex. Over the past year, the stock has climbed 160%, compared to a 23% rally in the benchmark.

In Q3FY22, Mindtree reported revenue of $366 million (+5.2% QoQ CC), driven by broad-based growth across verticals and regions. The company reported an EBITDA margin increase of 100 QoQ basis points to 21.5% for the quarter. Backlog was $358 million, up 14.6% year-on-year, while cash and capex was at a record high of $412.7 million.

Management reiterated that the demand environment remains strong and expects industry-leading growth in FY22.

The margin expansion could be attributed to 60 basis points to operational efficiency and 40 basis points to currency tailwinds. Margin expansion was one of the highlights of the quarter as its large peers felt cost pressures due to supply-side challenges. The company’s better control over sub-costs (they fell from 11.2% of sales in Q1FY22 to 9.7% of sales in Q3FY22) helped margins, ICICI Securities said in a note.

We view the continued execution of revenue growth and profitability as a key positive for the stock. While we expect its revenue to remain robust, the EBIT margin is expected to start stabilizing due to increased capex after growing 540 basis points over the past eight quarters, Motilal said. Financial Services.

Management’s increased focus on annuity income and strategic accounts is reflected in its revenue and customer base. Strong strategic account outlook, decent deal signings and ability to sustain margin improvement are key positives. The stock is currently trading at 40x FY23E EPS. As the major positives are already captured, we see limited upside potential going forward, the brokerage said.

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