Stock Market

Mindtree tanks 8% on Q1 revenue warning; wary analysts downgrade

Chillicious Bureau

Shares of Mindtree lost 8 percent, hitting one year low at Rs 507 per share intraday on Tuesday. Investors are busy offloading the midcap IT stock after it issued Q2 guidance warning.

In a statement to the exchanges, it stated that the Q2 revenue decline is expected due to cross-currency movements, project cancellations and slower ramp-ups in a few large clients across different verticals and continued weakness in its UK-based subsidiary Bluefin. 

Mindtree is also cautious that its Q2 margins are going to be lower than planned with a decline in EBITDA margins in Q2 FY17 compared to Q1 FY17. It added that business of Bluefin, which it had acquired in 2015, is expected to report an EBITDA loss for the quarter.

In a similar instance earlier in Q4FY16, Mindtree had issued an earnings warning a month before the quarter end and then surprised with firm numbers.  Its Q1 net profit was at USD 18.5 million, down 5.8 percent on a sequential basis. Revenue was up 2 percent higher from the March quarter to USD 199 million.  In rupee terms, its revenue was at Rs 1,327.6 crore, up marginally from the March quarter.

The guidance warning has worried analysts too. Credit Suisse has downgraded it to underperform after it had had recently downgraded it to neutral. It has also reduced earnings by 8-14 percent and target price to Rs 500 per share.

It believes that a continuing period of uncertainty has reduced management’s visibility and poses downside risk to street earnings as well as earnings multiple. “At the time of Q1 results, Mindtree was expecting Q2 growth to be similar to Q1 (1.1 percent in constant currency terms) and was reasonably positive on second of FY17. It did, however, indicate several instances of prolonged decision making,” says Credit Suisse.

Morgan Stanley has also downgraded it to underweight from overweight. It has cut revenues by 4-9 percent, margins by 160 basis points (bps) and earnings per share (EPS) by 17-20 percent for F17-19 and target point to Rs 455.

“Given low visibility, we believe investors won’t grant any benefit for recovery in FY18 until clear signs emerge. Since our Feb-16 sector downgrade, macro risks have heightened. While we need to evaluate if it becoming more endemic and affecting all vendors, we downgrade Mindtree owing to broad-based slowdown, “ Morgan Stanley says.

At 11:49 hrs Mindtree was quoting at Rs 512.95, down Rs 36.95, or 6.72 percent on the BSE.

Posted by Nasrin Sultana
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