MUMBAI: IT consultant and implementation company Mindtrees stock plunged 18% on Friday, its highest single day fall since listing in March, 2007, after analysts cut its EPS estimates by nearly 9% citing companys soft outlook for the near term in contrast to the current mood across the sector.
The stock recovered to end at Rs 821, down 16.13% on Friday.
After being very positive on demand so far, the company has suddenly turned cautious, indicating client spending will be impacted by events like Brexit. According to analysts, it is the first company talking this language in recent times. Typically, this tends to be preparation of the street for weak growth ahead.
“Post September quarter results, we have lowered our EPS estimates by 7% for FY 2020 and 8% for FY 2021 largely driven by lower-than-previously expected dollar revenues and also lower margins” said Girish Pai, head of research, Nirmal Bang Equities.
“While September quarter results from peers indicate a strong demand environment across verticals, segments and geographies, Mindtrees outlook on digital and key verticals like BFS, retail and manufacturing seems to be rather unenthusiastic” he added.
Mindtree stock gained nearly 60% this year through Wednesday compared with Sensex gain of 4% and BSE IT indexs 30% rise.
Mindtrees operating performance in September quarter undershot expectations. Revenue grew 2% quarter-on-quarter driven by 6.3% volume growth but realisations dipped 4%. Operating profit margins improved 130 bps QoQ to 15.4%. Net profit was ₹210 crore, beating expectations due to forex gain of ₹40 crore.
“While the company appears to have turned its business around strongly after the dismal performance in FY18, we remain concerned about its increasing dependency on the top client,” said Shyamal Dhruve, analyst, PhillipCapital. “At the same time, a valuation which is currently 19 times FY20 PE, highest in the mid-cap space, remains expensive.”
Although the management has sounded positive on the longterm demand environment, there was a bit of caution on demand in the near term. Headwinds in terms of customer outlook include negative customer sentiment, especially in Europe and America. There are also apprehensions of a hard Brexit dragging down customer sentiment, slicing discretionary IT spending.
“We maintain hold rating on the stock with a target price of ₹1,060 at 18x September 2020 estimated earnings, considering rich valuations, lop-sided revenue growth, and performance miss in September quarter,” Dipesh Mehta, analyst, SBICAP Securities.
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