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Revenue growth momentum continues

* MTCL’s Mar’21 quarter operating performance was broadly in line with our expectations. Revenue grew 5.2% QoQ to USD288.2mn. EBITDAM declined ~120bps QoQ to 21.9% due to salary hike, higher subcontracting costs and adverse currency movement.

* Mindtree continued to focus on growing the annuity business and cross-selling and upselling to strategic clients to accelerate revenue growth. It is confident of delivering doubledigit revenue growth in FY22 and sustaining EBITDAM above 20%.

* Deal wins remained healthy in Q4 at USD375mn, taking the total FY21 deal intake to USD1.4bn (12.3% YoY growth). Management indicated that the deal pipeline is closer to an all-time high, with a good mix of annuity deals offering good revenue visibility.

* We raise our FY22/23E EPS by 2%/3%, factoring in FY21 performance and benefits accruing from flattening the employee pyramid. Considering rich valuations, dependency on top client and anticipated pressure on margins over the medium term, we maintain Sell with a revised TP of Rs1,650 at 20x FY23E EPS (earlier Rs1,580).

What we liked?

Broad-based revenue growth, healthy deal intake

What we did not like?

Continued weakness in BFSI

Broad-based revenue growth in Q4; confident to deliver double-digit growth in FY22:

Revenue grew 5.2% QoQ to USD288.2mn (5.0% CC) in Q4 on the back of improving demand environment, steady ramp-up of past deal wins, and healthy deal intake (USD375mn in Q4; USD1.4bn in FY21) and deal pipeline. Revenue growth was broad based, led by TTH (17% QoQ), Retail, CPG & Manufacturing (9%) and CMT verticals (4.1%). BFSI fell 1.3% QoQ due to delays in certain deal closures. Management expects BFSI to return to the growth path in coming quarters. Top client grew 3.3% QoQ. Management reiterated their confidence on growing the top account and widening the growth base by expanding relationship with other strategic accounts. Management remains confident of delivering double-digit revenue growth in FY22 on the back of broad-based demand, healthy deal intake and deal pipeline.

Expect FY22 EBITDAM to sustain above 20%:

Q4FY21 EBITDAM declined ~120bps QoQ due to the impact of wage hikes wef Jan’21 (-240 bps) and adverse currency movement (- 50bps), partly negated by revenue growth acceleration and operating efficiencies (170bps). Investments in front-end sales teams, domain capabilities, normalization of travel costs and planned skill-based wage hike would act as margin headwinds in FY22. However, considering revenue acceleration, traditional margin levers (like offshoring, utilization) and flattening employee pyramid, management is confident of sustaining EBITDAM above 20% in FY22.

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