MINDTREE LTD - Q3 FY 21 - RESULTS ANALYSIS

 

MINDTREE LTD

Q3 FY 21 RESULTS ANALYSIS

 

About Mindtree

Mindtree is now a Larsen & Toubro Group Company.

Operating  in  more  than  15  countries  across  the  world,  we’re consistently regarded as one of the best places to work, embodied every day by our winning culture made up of over 22,000 entrepreneurial, collaborative and dedicated “Mindtree Minds.

Management

 

    Anilkumar Manibhai Naik

 

    Non Executive Chairman

 

    Sekharipuram Narayanan Subrahmanyan

 

    Non Executive Vice Chairman

 

    Debashis Chatterjee

 

    Managing Director & CEO

Key financial highlights:

Quarter ended December31, 2020

· In USD:

o Revenue at $274.1 million

(growth of 5.0% q-o-q / decline of 0.4% y-o-y)

o Net profit at $44.2million

(growth of 28.6% q-o-q/ 59.3%y-o-y)

· In INR:

o Revenue at ₹20,237million

(growth of 5.1% q-o-q / 3.0% y-o-y)

o Net profit at ₹3,265 million

(growth of 28.7% q-o-q / 65.7% y-o-y)

Other highlights:

·Clients:

o 276 active clients as of December 31, 2020

o 8 new clients added during the quarter

· People:

o 22,195 Mindtree Minds as of December31, 2020

o Trailing 12 months attrition is 12.5%

 

“Our third quarter has by far been the best performing in recent years backed by broad-based revenue growth of 5.0% across our verticals and service lines, robust margin expansion of 350 bps, and a healthy order book of $312M,” said Debashis Chatterjee, Chief Executive Officer and Managing Director, Mindtree.

“We are witnessing strong business momentum across all verticals with a significant demand for cloud, data and analytics capabilities.”

 

 

(₹ million)Q3 FY20 :: Q2 FY21::Q3 FY21::Q-o-Q:: Y-o-Y

Revenue  :: 19,653:: 19,260 :: 20,237 ::  5.1% 3.0%

EBITDA :: 3,063 :: 3,784 :: 4,679 :: 23.7%:: 52.8%

EBIT :: 2,364 :: 3,215 :: 3,962 :: 23.2% :: 67.6%

PAT   :: 1,970 :: 2,537 :: 3,265 :: 28.7%:: 65.7%

Diluted EPS (Rs.) :: 11.96 :: 15.40 :: 19.81 :: 28.7%:: 65.6%

 

KEY RATIOS  :Q3 FY 21 :: Q2 Y 21 :: Q3 FY 20

EBITDA Margin (%)15.6%::19.6%  :: 23.1%

EBIT Margin (%)    12.0%    :: 16.7% :: 19.6%

Effective Tax Rate (%):: 23.6% :: 26.4%  :: 26.6%

PAT Margin (%)      :: 10.0%  ::  13.2%   :: 16.1%

ROCE (%)             :: 29.6%  ::  34.4%         ::41.7%

ROE(%)                :: 25.5%  ::  28.4%    :: 34.1%

DSO (Days)           ::  66        :: 65          :: 61

Effective Tax Rate = Tax / PBTROCE = EBIT / Average Capital Employed. ROCE is annualized

Key Performance Highlights

Strong deal wins of $312M crossing $1Bn YTD

Record high PAT of $44.2M. Improvement of 290 basis points QoQ

 LTM attrition at 12.5%Improvement of 4 days in DSO, taking it to 61 days

Revenue by Geography ::  Q3 FY20  :: Q2 FY21 ::Q3 FY21

North America               :: 74.6%  ::  77.4%  :: 77.2%

Continental Europe        :: 8.3%          7.5%      7.4%

UK and Ireland8.           :: 7%      :: 7.9%  ::  7.8%

Asia Pacific & ROW         :: 8.4% :: 7.2% :: 7.6%

Total                           100.0%   100.0%   100.0%

 

Revenue by Industry      Q3 FY20  Q2 FY21         Q3 FY21

BFSI                            21.3%            20.4%     19.6%

Communications, Media & Technology*41.5%::49.8%::49.9%

Retail, CPG & Manufacturing   :: 20.6% :: 21.5%  :: 21.6%

Travel & Hospitality        ::    16.6%     :: 8.3%  :: 8.9%

Total                                  100.0%   100.0%   100.0%

 

Overall TCV- IN USD (MILLIONS OF $)

                                         207         303         312

Quarter at a glance

The quarterly revenue performance was good with a sequential revenue growth of 5 per cent in reported currency at $274.1 million. This is the highest Q3 revenue growth in a decade. However, revenue was almost flat when compared with the year-ago period.

It was a broad-based revival with all the key geographies, namely the US, Continental Europe, the UK & Ireland as well as the Asia Pacific, showing sequential growth.

In terms of the four key industry verticals — Communication Media & Technology, BFSI (banking financial services), retail CPG (consumer packaged goods) and the much-troubled travel and hospitality — all showed positive sequential growth.

The four key services — Customer Success, Data & Intelligence, Cloud and Enterprise IT — also reported sequential growth.

 

In terms of client performance, the top client grew sequentially by 3.6 per cent. It is also heartening to see a more de-risked growth with a stronger sequential growth of 5.6 per cent coming from others, excluding the top client.

However, it was the performance of the operating margin that stood out, with the EBITDA (earnings before interest, tax, depreciation and amortisation) margin showing a sequential jump of 350 basis points at 23.1 per cent, without any one-off factor. The company attributed this sharp improvement to traction in revenue, stable pricing and operational efficiencies. The utilisation rate has jumped from 78.8 per cent in the previous quarter to 83.1 per cent and the offshore mix has improved 70 basis points sequentially to 82.8 per cent. Despite some near-term headwinds, the management is confident of a high-margin trajectory, upwards of 20 per cent.

 

The segmental margin in travel and hospitality showed a sharp sequential improvement. In fact, the other three verticals of BFSI, Retail and Technology also showed a sequential improvement in margin.

 

Deal win momentum was decent with the company bagging deals worth $312 million, a little higher than the previous quarter. In the first nine months of the current fiscal, the company has bagged orders of little over $1 billion, which is 20 per cent higher than the year-ago period. The management exuded confidence in the pipeline as well.

 

The rationalisation of tail accounts continue as reflected in the decline in the number of  $1-million clients and the management is putting efforts to deep mine larger relationships with a focus on annuity stream of revenue. It added 8 new clients in the quarter.

 

The receivable position improved to 61 days from 65 days in the previous quarter and attrition fell by 130 basis points sequentially to 12.5 per cent.

 

The company is sitting on a healthy cash position of Rs 2,523 crore and is open to opportunistic acquisition to grow.

 

Key negatives

 

Mindtree is implementing a wage hike effective from January and this could result in a sequential margin contraction.

 

Despite the all-round improvement, revenues in BFSI and travel and hospitality are still lower than the pre-Covid levels.

 

Outlook

 

Mindtree remains a winner in the new normal with its head-start in adopting digital technology. With its four-by-four-by-four strategy of targeting four geographies, industries and service lines, it is sharpening focus on client mining and execution. This has already started yielding results as is evident from the Q3 numbers. The company is actively participating in three key areas — enabling corporates to work remotely, maximising revenue potential through digitisation and bringing in cost efficiencies with cloud migration — and is therefore gaining from post-Covid vendor consolidation.

We expect Mindtree’s current valuation discount to peers like L&T Infotech, Coforge or Persistent to narrow as it comes out of the negative impact of Covid on its travel vertical and reverts to its trajectory of industry-leading growth.

 

Mindtree (in Rs. Cr.)	Dec '20	Sep '20	Jun '20	Mar '20	Dec '19	YOY	QOQ
Net Sales/Income from operations	2,023.70	1,926.00	1,908.80	2,050.50	1,965.30	2.97	5.07
Employees Cost	1,261.00	1,262.30	1,277.60	1,293.30	1,253.50	0.6	-0.1
Depreciation	71.7	56.9	59.7	67.9	69.9	2.58	26.01
Other Expenses	294.8	273.4	309.2	433.5	405.5	-27.3	7.83
P/L Before Other Inc., Int., Excpt. Items & Tax	396.2	333.4	262.3	255.8	236.4	67.6	18.84
Other Income	61.6	24.5	40.6	18.3	34.8	77.01	151.43
P/L Before Int., Excpt. Items & Tax	457.8	357.9	302.9	274.1	271.2	68.81	27.91
Interest	12.7	13.2	13.1	12.8	13.3	-4.51	-3.79
P/L Before Tax	445.1	344.7	289.8	261.3	257.9	72.59	29.13
Tax	118.6	91	76.8	55.1	60.9	94.75	30.33
Net P/L After M.I & Associates	326.5	253.7	213	206.2	197	65.74	28.7
Equity Share Capital	164.7	164.7	164.6	164.6	164.6	0.06	0
Reserves Excluding Revaluation Reserves	3,804.80	3,527.50	3,297.30	2,992.20	2,993.30	27.11	7.86
Basic EPS	19.82	15.41	12.94	12.53	11.97	65.58	28.62
Diluted EPS	19.81	15.4	12.93	12.52	11.96	65.64	28.64

 

MP  1772.5

PE   22.37

52 Week Range:  L 692.00 :     H 1,782.80

Volume  :     2,502,474

3 year CAGR growth

Revenue       14.0%

Net Profit      14.7%

Operating Profit   15.4%

 

 

 

 

 

· Q3 deal wins with leading global clients:

o We have been chosen to drive the digital transformation journey of a leading global wind turbine manufacturer. As part of this five year deal, Mindtree will simplify, modernize, and transform the entire IT landscape of the client globally, while providing scalability to support the company’s growth plans

o Mindtree partnered with a Large global airline, as a strategic technology partner, to enhance consumer experience on mobile digital platforms. We will provide application development and maintenance services to enhance the features of the mobile application along with underlying services layer

o A World-leading sportswear brand selected Mindtree as a strategic partner for a multi-year engagement to provide application development services to accelerate their journey towards a product led and outcome-oriented organization

o Mindtree has been selected by a US based diverse insurance and reinsurance provider to provide end to end IT Infrastructure Management and cloud services, resulting in enhanced efficiency and speed of business standardization

·Recognition:

o Mindtree has been recognized as a winner in SHRM HR Excellence Awards 2020 under Excellence in HR Analytics Award category o Mindtree has been honored with the title of IT Pride of Karnataka -2019-20 by STPI IT Export Awards, granted by STPI(Software Technology Parks of India) of Karnataka

o Mindtree has been awarded as a top performer, with a score of A-, in the 2020 Climate Change ranking by Carbon Disclosure Project (CDP)

o Mindtree recognized as a leader in ISG Provider Lens™ for Next-gen Application Development and Maintenance (ADM) Services (U.S.) 2020 in application maintenance services, agile development, and continuous testing

o Mindtree recognized as leaders in ISG Provider Lens™ for Digital Business Solutions and Service Partners 2020 (Australia) and Public Cloud Solutions and Services for Midmarket 2020 (U.S.)