Strong focus on operational efficiency drives Mindtree profit up 54% YoY

Revenue rises 2.9%, board recommends of 175% final dividend or Rs 17.5 per share

Mid-sized IT firm Mindtree on Friday reported a 53.9 per cent rise in fourth quarter profit to Rs 317.3 crore, while revenue rose 2.9 per cent year-on-year, helped by its focus on operational efficiency programmes over the last few quarters.

Revenue for the quarter ended March 31, 2021 was at Rs 2,109.3 crore. The company's Board also recommended a final dividend of 175 per cent or Rs 17.5 per equity share of par value Rs 10 each for the financial year ended March 31, 2021, subject to the approval of shareholders.

“The final dividend of Rs 17.5 per share announced today reinforces Mindtree’s commitment to enhance shareholder value. For the year, we delivered revenues of $1,076.5 million and margin expansion of 680 bps, while increasing our order book by 12.3 per cent. As we enter FY22, we are confident that continued client demand for our transformative services, a strong order book, and our strategic investments positions us well to deliver double digit growth and sustain EBITDA above 20 per cent,” said Debashis Chatterjee, Chief Executive Officer and Managing Director, Mindtree.

Chatterjee said in a post earnings call that the confidence to attain double digit growth comes from its current growth momentum, and a strong order book, which is at $1.4 billion. "And we are also doing a lot of cross sell and upsell. Our strategy is to really focus on key, strategic clients and go as deep as possible. And given that pipeline is stronger in Q4, we are very confident that we should be able to do a double digit growth in the current financial year," he added.

Responding to a question on the near 54 per cent annual rise in profit, Chief Financial Officer Vinit Teredesai said, "In the last 6-7 quarters we have launched a lot of operational efficiency programmes, those have started showing results. Last year we went into a cost managing period, managing our investments at teh right pace. The growth momentum we have seen in the last couple of quarters is allowing us to monitor costs and keep on improving our productivity and ensure that our cost base...will sustain that sort of profitable growth."

The trailing 12 month attrition during the fourth quarter was 12.1 per cent, while utilisation was at 84.3 per cent.

Chatterjee said the company will be significantly increasing hiring on the lateral and freshers front in the current financial year.

Commenting on the results, Suyog Kulkarni, Senior Research Analyst at Reliance Securities said, "We believe risk-reward is unfavourable in case of Mindtree due to its high exposure to T&H vertical and disproportionate dependence on top clients. We will become constructive on the stock if we see step up in growth in top 2-20 clients or sharp rebound in T&H vertical."

T&H refers Mindtree's Travel and Hospitality business. While the revenue share of the vertical has come down to nearly 10 per cent from 16.2 per cent a year ago, the uncertainty in the sector due to the pandemic persists.

Mindtree's top client accounted for 28 per cent of overall revenue during the quarter, and the top five clients collectively accounted for another 38.6 per cent.

Overall total contract value was $375 million, and the number of active clients was 270, down from 307 a year ago.

Chatterjee said this was part of the company's strategy of focusing on limited number of clients and ensuring that Mindtree gets a smaller set of clients and build deeper relationships by doing a lot more cross sell and upsell.

Q4 numbers:

Revenue at Rs 21,093 million (growth of 4.2% QoQ and 2.9% YoY)

Net profit at Rs 3,173 million (decline of 2.8% QoQ and 53.9% YoY)

EBITDA margin: 21.9%

Attrition (LTM): 12.1%

Utilization: 84.3%

FY21 numbers

Revenue at Rs 79,678 million (growth of 2.6%)

Net profit at Rs 11,105 million (growth of 76.0%)