Shares of midcap IT firm Mindtree slipped 2.5 percent on Tuesday after the firm reported its March quarter earnings. the firm's consolidated net profit jumped 49 percent in the March quarter to ₹473.1 crore versus ₹317.3 crore in the year-ago period. On a sequential basis, the growth in profit stood at 8 percent.
Its revenue came in at ₹2,897.4 crore for the quarter under review, up 37 percent YoY. On a quarterly basis, revenue rose 5 percent.
The company had reported consolidated revenues of ₹2,109.3 crore during the corresponding quarter last year. The revenues during October–December period stood at ₹2,750 crore.
The stock fell as much s 2.5 percent to its day's low of ₹3,858 per share on the BSE. IT stocks have been on the decline since on the back on weak results by IT majors TCS and Infosys. Just in the month of April, the IT index has lost nearly 10 percent.
The company noted that the growth is driven by strong discretionary spending and new wins. BFSI and travel verticals were the growth drivers.
Most brokerages remain cautious or neutral on the stock post the earnings. Domestic brokerage Nirmal Bang maintained its 'sell' rating on the stock with a target price of ₹3,120, indicating a 21 percent downside.
The brokerage believes that margins will face pressure in FY23 with the opening up of travel and salary hikes planned in FY23.
"It was indicated that the cyclical headwinds emerging in the US and Europe will not affect demand or deal pipeline in the short term as IT plays an important role in both cost-saving as well as revenue maximization strategies.
However, Mindtree did say that it did not have clear visibility of how demand would pan out in H2FY23. Revenue maximization mandate gives appetite to ask for higher pricing while cost-efficiency mandate suffers from pricing pressures.
The firm boasts of balancing between these two mandates to create superior customer relationships in the current inflationary environment. However, we do not think that Tier-2 companies will measure up well on the efficiency side when compared to Tier-1 companies due to weaker automation skills," it said.
Meanwhile, Nomura downgraded Mindtree to 'neutral' and has a target price of ₹4,320 for the stock. Deal wins continue to be sluggish while growth is made up of smaller projects, noted Nomura. Headcount signals strong growth for Mindtree will continue, the brokerage firm said.
ICICI Securities also has a 'hold' rating on the stock with a target price of ₹3,965. According to the brokerage, Mindtree will likely continue to deliver industry-leading growth along with a strong operating performance in FY23E as well.
"We are impressed by Mindtree's consistency and disciplined execution on profitability, and believe it is moving from discrete initiatives to transformation at scale which increases cross-selling opportunities with clients," it said.