Mindtree Q4 Review - Tailwind From Travel Vertical To Boost Growth In FY22E: Motilal Oswal
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Motilal Oswal Report
Mindtree Ltd. (MTCL) delivered another strong quarter, with U.S. dollar revenue growth of 5.1% QoQ, above our estimate of 4.3%, driven by robust growth outside of the top 10 accounts (+8.6% QoQ USD) and end of discounts in the Travel and Hospitality vertical (+17% QoQ USD). Deal TCV rose 20% QoQ to $375 million in Q4 FY21 and the management indicated that deal pipeline is at a record high.
It was able to deliver better than expected Ebit margin in Q4 FY21 (18.6%, down 100 bp QoQ) as wage hike impact (-240 bps QoQ) was partially compensated by operational efficiency and higher utilisation (84.3%, +120 bps QoQ).
While Q4 FY21 growth was aided by end of discounts in the travel vertical, FY22 should be broad based on scaling of deals in BFSI and return of business in the Travel industry.
We see MTCL benefitting from strong demand in Cloud (19% of revenue) and in its top account. Combined with a strong H2 FY21 exit, it should deliver U.S. dollar revenue growth of 19% YoY, one of the highest in our coverage universe.
This strong growth should help the company maintain its Ebitda margin at 20.8% (flat YoY), despite higher investment in sales, selective employee interventions, and significant ramp up in its employee base (to bring down historical high utilization).
Cash conversion remained strong in Q4 FY21 as well (100% FCF/PAT ratio) led by robust operating income and lower capex. In FY21, reported revenue (USD)/EBIT/PAT in IT Services moved by -1.1%/62%/76%.
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