Mindtree

Mindtree, a part of L&T Group reported FY20 revenue at Rs. 7,764 cr up 10.6% from the previous financial year. The annual revenue grew by 9.4% in constant currency terms. The PAT fell by 16.3% to Rs. 630 cr in FY20 mainly on account of lower margins during H1 FY20. Mindtree also recommended a final dividend of Rs. 10 / share in Q4 FY20 bringing the cumulative dividend to Rs. 13 / share in FY20. Mindtree’s EBITDA margins have been volatile over past several years, we believe maintaining 17%-18% EBITDA margins going forward would remain a work in progress. Mindtree's sectoral exposure to relatively lower impacted segments like Hitech, BFSI & Retail is a higher % then the directly pandemic impacted sectors like travel / manufacturing. Also, it's noteworthy that Management's commentary on business from the impacted sectors being renegotiated in terms of execution delay and not contract withdrawal, gives a strong sense of security on the businesses ability of survival through the tough times. However at the current trailing valuation ie. P/E of 20.38x FY20 earnings the stock is rated at a fair valuation based on it's archival ratings. We believe that in the current situation with lack of visibility on further earnings growth it is advisable to avoid fresh long positions in the stock. However, strong parentage, balance sheet and greater ability to steer through the pandemic due to the sectoral advantage of having work from home ready systems we don't see any business survival risks and assign a HOLD rating to the stock.