MINDTREE REPORTS STRONG NUMBERS BARRING SOME CLIENT SPECIFIC RAMP DOWN

News: Mindtree reported strong numbers on both revenues and margins. The company reported 5.5% CC QoQ revenue growth (sixth consecutive quarter of 5%+ CC QoQ growth), while dollar revenues grew 4% QoQ to US$399.3 mn. This implies 150 bps cross currency headwinds. Rupee revenues grew 7.7% QoQ to Rs 3121.1 crore. EBITDA margins came in at 21.1% QoQ, up by 10 bps QoQ. EBITDA margins were as follows (headwinds were: -50 bps visa costs, -60 bps merger related costs; tailwinds were: +50 bps operating efficiency, +70 bps forex benefit).  Growth was driven by technology, media & services (up 5.9% QoQ), BFSI (up 6.5% QoQ) and travel & hospitality (up 11.2% QoQ). In terms of geographies, the growth in revenue was led by the US ( 77% of mix), which grew 8.5%. The decline in retail vertical to the tune of 8.7% QoQ and UK & continental Europe by 9.2% and 18.7% was related to a couple of clients whose operations were impacted by Russia/Ukrain war as well as China Covid related lockdowns. In client profile, revenue growth was led by top customer, which grew 8.6% QoQ. The company reported highest ever order book of US$570 mn for the quarter, up 13% QoQ, 46% YoY. The company added 2,384 employees in the quarter, taking its base to 37,455 while utilisation declined 190 bps QoQ to 81.2% on continued strong fresher additions. 

Views: The company indicated that tech spends across clients continue to be robust  at least in H1FY23 barring some client specific issues while it has given cautiously optimistic view for H2FY23. TCV trend continue to be robust, implying strong revenue growth in the coming quarters. Margin performance for Mindtree was a standout among its large peers. This could be due to lower employee costs on faster flattening of curve (20% employee base is fresher now) and the company maintains 20%+ EBITDA margin guidance for FY23 considering wage hike cycle in Q2. It added 1,500 freshers for a fourth consecutive quarter and guided for 7,500 fresher additions in FY23, which indicates acceleration in the coming quarters.  The company expects attrition to be elevated in Q2 and likely settle in H2FY23.

Impact: Positive