Mindtree declines 6% on profit booking post Q3 results

Mindtree shares fell 6% to Rs 4,477.25 on the BSE in intraday trade on Friday due to profit-booking on high valuation after the company disclosed a solid set of October-December quarter (Q3FY22) revenue and margin figures. At 11 a.m., Mindtree was trading 4.82% down at Rs 4,514.95, compared to a 0.65% drop in the S&P BSE Sensex.

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Despite today’s drop, the stock has outpaced the market over the last six months, rising 68% compared to Sensex’s 15% growth. The stock has increased by 160% in the last year, compared to a 23% increase in the benchmark index.

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Mindtree reported revenue of USD 366 million in Q3FY22, owing to broad-based growth across verticals and regions. The company recorded a 100 basis point QoQ increase in EBITDA margin to 21.5% for the quarter. The order book was at $358 million, up 14.6% year on year, while cash and investments reached an all-time high of $412.7 million.

The management team highlighted that the demand environment is robust and that it expects industry-leading growth in FY22.

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The margin expansion could be attributed 60 bps to operating efficiency and 40 bps to currency tailwind. Margin expansion was a key highlight of the quarter when its large size peers felt the cost pressures due to supply-side challenges. The company’s better control on sub costs (it has come down from 11.2 per cent of sales in Q1FY22 to 9.7 per cent of sales in Q3FY22) has been helping margins, ICICI Securities said in a note.

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We view continued execution on both revenue growth and profitability as a key positive for the stock. While we expect its top line to remain robust, EBIT margin should start stabilizing due to increased investment after expanding by 540 bps in the last eight quarters, Motilal Financial Services said.