Mindtree Q4FY22 review - Steady performance; maintains 20%+ EBITDA margin guidance

What's Buzzing:

Mindtree's healthy order book of US$1.6 bn provides revenue visibility for FY23. EBITDA margin guidance maintained at 20%+.

Context:

The company reported constant currency growth of 5.2% QoQ while dollar revenue growth was 4.7% QoQ to US$384 million (mn). The growth was driven by technology, media & services (up 5.2% QoQ), BFSI (up 8.9% QoQ) and travel & hospitality (up 9.3% QoQ) while retail reported decline of 2.6% QoQ due to ramp down in retail client. In terms of geographies, the growth in revenues was led by US and RoW, which was up 5.6% QoQ and 8.5% QoQ. Among clients, revenue growth was led by top customer as well as Top 2-5 customers, which grew 4.7% and 7.7% QoQ, respectively. The company registered EBIT margin of 18.9%, down 30 bps QoQ due to 6.3% QoQ increase in employee expenses. The deal pipeline is up 8.9% QoQ (up 4.0% YoY) to US$390 mn. The company added 3,112 employees in the quarter, taking its base to 35,071 in FY22 while utilisation improved by 160 bps QoQ to 83.1%. LTM attrition increased 190 bps to 23.8% now.

Our Perspective:

The company’s revenue growth largely came in from continued client spending as well continued traction in its top clients. The revenue growth for Q4 was also a function of improved utilisation (by 170 bps QoQ). The order book of US$1.6 bn (that continue to rise over the years) provides visibility of healthy revenue growth ahead. The company reported 20.9% EBITDA margin (vs. guidance of 20%+) for FY22 despite continued costs pressure amid demand supply mismatch. It continued to guide for 20%+ EBITDA margin for the medium term, which would be supported by revenue growth, right pricing (especially for niche skills), pyramid optimisation (1500 freshers were being added per quarter. It is looking to ramp up fresher hiring in FY23) and discipline in sub-contractor costs, which has come down from 11.3% of sales in Q1FY22 to 9.5% of sales in Q4FY22). We estimate 19.4%, 16.9%, 13% CAGR in revenues, EBITDA, PAT. respectively, in FY22-24E.