MindTree Ltd, mid-tier information technology (IT) services and products company, will recover from the margin impact of wireless business restructuring in the current quarter with a likely uptick of around 300% basis points.
MindTree Ltd, mid-tier information technology (IT) services and products company, will recover from the margin impact of wireless business restructuring in the current quarter with a likely uptick of around 300% basis points.
Though analysts believe it will be a while before the company’s revenue growth falls in line with its peers.
Analysts Sandeep Muthangi and Aniruddha Dange of IIFL Institutional Equities on Thursday wrote in a note that they expect MindTree’s margin to improve in the March quarter.
“While we expect Ebitda margins to improve by around 300bps by next quarter (March quarter) as losses on the company’s Android foray have been completely recognised, revenue growth is likely to lag its peer-set.”
In the third quarter of the current fiscal, MindTree’s Ebidta margin was eroded 40bps sequentially to 11.7%. The company’s quarter-on-quarter (QoQ) revenue growth in rupee was also muted at around `380 crore. It was even lower after excluding the impact of a non-recurring licence sale at 2.5% growth due to a decline in its product engineering and wireless businesses.
For Muthangi and Dange, high attrition — at 35% quarterly annualised rate — is also a big worry as it could have a detrimental impact on project schedules and the cost structure of the company.
Shashi Bhusan, analyst with Prabhudas Lilladher, is also prediction an upswing in MindTree’s operating margin and expects it to hover at the “high-to-mid-teen levels in fiscal 2012.”
“We believe that the margin would see an uptick in fourth quarter of the current fiscal. Excluding restructuring cost, Ebitda margin for third quarter of fiscal 2011 is around 15.4% (around 350bps higher than Q2FY11). We believe that as most of the wage hike is behind them (MindTree), the company would deliver high-to-mid-teen margins for the next fiscal,” said Bhushan in his report brought out on Thursday.
Bhuvnesh Singh, Sunil Tirumalai and Sagar Rastogi of Credit Suisse are not as bullish. They feel that MindTree’s positive topline growth over the years has yet to reflect in its margins.
“Over the past five years, MindTree has more than tripled its topline, but there has been no positive scale effect on its margins. Due to lack of margin leverage, and significantly higher volatility associated with its business model, we remain cautious,” the
Credit Suisse analysts noted in their report.
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