News Analysis

Mindtree Q2 result: Cost control helps company post healthy earnings

Vivek Ananth BL Research Bureau | Updated on October 15, 2020 Published on October 15, 2020

The revival in demand for IT services in the quarter ended September 30, 2020 seems to be coming from two industries — financial services and retail (including consumer packaged goods). To an extent, even manufacturing clients contributed to revival in demand for IT services from Indian companies.

This trend, along with some deft cost control, helped Mindtree post good quarterly earnings in the September 2020 quarter.

Mindtree’s consolidated net profit came in at ₹253.7 crore, up 19.1 per cent on a quarter-on-quarter (QoQ) basis. The rise in profits was helped by continued tight control on costs. Employee costs fell 1.2 per cent QoQ,while there was a near 12 per cent fall in other expenses.

The company’s consolidated revenues rose only 1 per cent sequentially to ₹1,926 crore as revenues from communications, media and technology segments remained muted. In dollar terms, Mindtree’s revenues were up 3.1 per cent at $261 million.

Operating metrics

The impact of the cost control during the quarter can be seen in the company’s earnings before interest and tax (EBIT) margin rising 160 basis points QoQ to 16.7 per cent. The rise in margin was also helped by a fall in attrition to 13.8 per cent during the quarter compared to 16.6 per cent in Q1. The rise in employee utilisation to 78.8 per cent (vs 75.5 per cent QoQ) also helped shore up the company’s margins.

The total contract value of deals signed during the quarter were at $303 million (in addition to the $391 million in the previous quarter). This should help the company report decent revenue growth over the next few quarters.

Mindtree added eight new clients during the quarter. However, its active clients number has dipped to 283 in Q2, compared to 292 in Q1.

Industry-wise performance

Mindtree’s revenues from its mainstay industry group — communications, media and technology — witnessed tepid revenue growth in Q2. This industry group makes up for nearly 50 per cent of its revenues, but growth in dollar terms QoQ was only 0.7 per cent.

Banking, financial services and insurance (BFSI), which saw tepid revenue growth in the previous quarter, managed to post revenue growth of 3.6 per cent in dollar terms in the quarter. The growth in revenues from this industry is the general trend across the IT services industry.

Another general trend that helped Mindtree post revenue growth in dollar terms was revival in IT spending in its retail, consumer packaged goods, and manufacturing industry group. Revenues in this segment rose 7.6 per cent in dollar terms, helping cushion the impact of the downturn in travel and hospitality industry group. Although the travel and hospitality segment saw 5.6 per cent sequential revenue growth, its contribution to Mindtree’s revenues at about 8 per cent continues to remain half of the about 16 per cent seen in the March 2020 quarter. This segment has been the worst hit across the world due to the pandemic.

Regional show

In terms of regional performance, continental Europe, UK and Ireland, and Asia-Pacific saw revenues in dollar terms rise about 3 per cent each, while North America (77.4 per cent of revenues) saw dollar revenues rise by just 1 per cent sequentially.

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Published on October 15, 2020
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