Mindtree tanks 18% on revenue miss, cautious outlook; analysts mixed

Shares of the mid-tier IT company tumbled as much as 17.6 per cent in the intra-day trade on Friday after the company reported subdued growth for the September quarter. The sentiment was also hit on the cautious macro commentary by the management.

The IT firm on Wednesday posted a 65.4 per cent rise in its consolidated net profit at Rs 2.06 billion, on the back of sound growth in travel & hospitality and hi-tech & media verticals. However, it disappointed Street with muted constant-currency (CC) growth of 2.4 per cent in a seasonally strong quarter.

In dollar terms, posted $246.4 million in revenues, a growth of 19.5 per cent y-o-y and two per cent sequentially.

Motilal Oswal in its report said Mindtree's 2QFY19 constant currency (CC) growth of 2.4 per cent QoQ was below its estimate of over 5.7 per cent and significantly below over 8.2 per cent QoQ CC in 1QFY19. "Our estimate was based on management’s guidance of ‘slightly lower’ growth in 2Q compared to USD revenue growth in 1Q, but project completion in Retail in Europe and spill-over of replenishing deals into 3Q dragged the performance," it added. The brokerage noted that for some quarters now, has not seen as much spending on Digital within its BFS portfolio relative to other verticals. It has, however, maintained 'BUY' rating on the stock.

Nirmal Bang Securities noted that while the Bengaluru-headquartered company had given guidance of ‘slightly lower growth’ vis-a-vis 1QFY19, it turned out to be ‘significantly lower’. Also, it did not drop any hint about this near-term weakness in growth or about the macro concerns in clients it alluded to on the investor call. "After being very positive on demand so far, Mindtree has suddenly turned cautious; indicating that client spending will be impacted by events like Brexit. It is the first company talking this language in recent times," it said. The brokerage firm has retained 'Sell' rating on the stock with the target price of Rs 778.

Kotak Securities says even as revenues fell short in the quarter, it has retained its FY2019-21E revenue growth estimates. However, it has cut FY2019-21E EPS estimate by 0.3 per cent largely due to cut in margin assumption by 20-40 bps from FY2019-21E. Also, it has trimmed target price to Rs 1,080 (from Rs 1,225 earlier). It has maintained 'ADD' rating on the stock.

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