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Bengaluru, NFAPost: L&T owned IT services company Mindtree reported a 3.3% sequential increase in June quarter at Rs 213 crore, driven by other income (up 122% QoQ) and operating income but weak revenue limited growth.

The company reported a net profit of Rs 206.1 crore in the March quarter last fiscal. At the same time, the company witnessed sharper-than-expected fall in revenue in the June quarter.

Revenue from operations fell 6.9% quarter-on-quarter to Rs 1,908.8 crore, while dollar revenue declined 9% to $253.2 million, the company told BSE. This slide is compared to analysts’ estimates of a 7-8% decline.

Mindtree’s June’20 quarter revenue performance fell a tad short of the company’s mid-quarter outlook with a 9% sequential revenue decline, albeit to give credit to the company, the company managed to hold margins ( EBITDA margins flat adjusted for one-offs in Mar’20 quarter, up 110 bps QoQ on a reported basis).

Healthy order book

Commenting on the Q1 performance, Mindtree Chief Executive Officer and Managing Director Debashis Chatterjee said the company closed the quarter with a healthy order book of $391 million despite the global headwinds due to Covid-19 pandemic.

“Our unwavering focus on operational efficiencies has helped us post a healthy EBITDA of 18.2%,” said Chatterjee.

He also pointed out that the company expects better Q2 at the back of growing digital projects during Covid-19 though deal closures are taking longer. 

“The company was able to gain market share during increasing demand for digital and workplace transformation projects,” said Mindtree Chief Executive Officer and Managing Director Debashis Chatterjee.

According to Arvian Research analyst, growth continues to be very strong at the top client, MSFT (+10.4% QoQ) with revenue performance across other segments/client buckets being very weak (and as one would expect across the sector).

“It is a fact that the company witnessed a slump in the revenues in travel, transport and hospitality segments. But at the same it was partly offset by the communication, media and technology vertical. Dollar revenue in this segment grew 9% sequentially, generating more than half, or 51% of Mindtree’s revenue in Q1 FY21,” states Arvian Research analyst.

Order renewals

The company reported overall deal wins of $391 million for June’20 quarter( V/s $ 393 million in March’20 quarter and $ 324 million in June’19 quarter) albeit included a larger proportion of renewals during the quarter.

It is interesting to note that the revenue share of the top client grew from less than 25% in March to more than 30% in the June quarter. In the backdrop of the large hit on one large business segment last quarter, the increased reliance on one large customer and the communications vertical is looking lopsided.

Mindtree added six new clients during the quarter, taking total active clients count to 292 as of June 30, 2020, while its order book stood at $391 million.

Cloud and enterprise IT

Mindtree will now focus on four new service lines such as customer success, data and intelligence, cloud and enterprise IT for deeper account mining. This will also help the company cross sell and upsell its products and services.

Though the company added close to 738 employees at the end of June quarter, sales and support staff count came down by 70. While there will be selective hiring based on requirements, Mindtree will continue to focus on reskilling and retraining existing employees in new-age technologies.

June’20 quarter results

  • Mindtree reported revenues at $ 253.2 mn (-9.1% QoQ, -4.2%YoY), lower than our expectations of 7.4% QoQ revenue decline. Constant currency revenue decline was 9% %QoQ ( V/s our expectations of 7.1% QoQ c.c revenue decline)
  • EBIT margins at 15.1%, improved by 130 bps QoQ) were ahead of our expectations of flat margins aided by tight cost controls( Travel costs :-210 bps QoQ, Subcontractor expenses, -110 bps QoQ, Other expenses,-100 bps QoQ) ,INR depreciation & offshore growth despite revenue miss. Margin performance certainly is positive.
  • Profits at Rs 2.1bn  (+3.3% QoQ, +130% YoY) tad ahead of expectations aided by better than expected margin performance and higher other income

Other operating metrics

  • Onsite volumes: -5.9% QoQ/-2.1% YoY
  • Offshore volumes: 2.1%QoQ/11.3 YoY
  • Utilization( including trainees): 75.5%( V/s 76.5% in Mar’20 quarter)
  • Headcount: 21,955,  (  V/s 21,991 employees as of Mar’20 quarter end)
  • LTM reported attrition at 16.6% V/s 17.4% in Mar’20 quarter. Quarterly annualized attrition at 14.1% ( V/s 16.4% in  Mar’20 quarter)
  • Digital revenues: 37% of revenues (-12.6% QoQ/-6.7% YoY).

Growth by Geographies (All in $ terms)

  • US:-6.4% QoQ
  • Europe: -22.1% QoQ

Growth by Verticals (All in US$ terms)

  • Manufacturing: -7.7% QoQ
  • BFSI: -9.5% QoQ
  • Travel and Hospitality: -54.5% QoQ
  • Hi tech:+7.6% QoQ

Growth by clients (All in $ terms)

  • Top client: 10.4% QoQ
  • Top 5 clients: 2.9% QoQ. Top 2-5 client revenues have declined by ~11.4% QoQ)
  • Top 10 clients: -0.2% QoQ
  • Non Top 10 clients: -17% QoQ
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