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Mindtree’s client concentration is a strength as covid drives demand for new technologies

Mindtree’s client concentration is a strength as covid drives demand for new technologies
Photo: Mint/Aniruddha Chowdhury
The stock gained 8% in the early deals on Monday after the company reported a 1.9% sequential constant currency revenue growth
Mindtree Ltd impressed the Street with better performance in the March quarter. The stock gained 8% in the early deals on Monday after the company reported a 1.9% sequential constant currency revenue growth and 1.5 percentage-points expansion in operating profit margins, despite business disruption by covid-19 and notable slowdown in travel & hospitality business.
Volume growth was also strong (up 4.1%) and deal wins at $393 million are highest in recent quarters.
“Mindtree’ March 2020 quarter surprised positively on margin performance, with adjusted Ebit margins improving t
o 14.8%, reflecting disciplined execution under the new leadership in H2FY20 and aided by a curtailment of sales, general administration staff (expenses) as well," Emkay Global Financial Services Ltd.
Management sees demand slowdown in near term. “Looking ahead to fiscal 2021, we anticipate softness in demand due to the unprecedented COVID-19 pandemic," Debashis Chatterjee, chief executive officer and managing director said in a statement.
Also client and service vertical metrics reveal a lopsided growth. Much of the incremental growth is driven by the top client and hi-tech and media business vertical. Top client now generates almost a fourth of Mindtree’s revenues-24.8% in Q4. In the year ago this client generated a little less than a fifth of Mindtree’s revenues (19.8%).
Similarly, contribution of hi-tech and media rose from less than 40% in the year ago and 41.5% in December to 43.1% last quarter. Except hi-tech and media, all business verticals sequential fall in revenues. Geography wise only the US clocked growth.
Still, expectations remain upbeat. Management expects the recently to ramp-up the recently-won deals, albeit at a slower pace.
Importantly it expects the top client to keep-up the revenue momentum. The company’s high exposure to hi-tech and media (generates 43% of revenues) and digital expertise is seen as good hedges against the current pressure on traditional businesses.
Also traction at top client is driven by new technologies, demand for which is accelerated by covid-19 disruption.
“Within the top client, the company indicated it is well-diversified across areas such as analytics, networks, customer/tech support, and marketing operations," analysts at Motilal Oswal Financial Services Ltd said in a note. “As COVID-19 is expected to drive the strong adoption of collaborative tools, management believes its top client and the company are in an advantageous position."

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