It’s quite uncommon for a captain to abandon ship. After chairman Ashok Soota’s resignation, investors of MindTree Ltd would be wondering if they’re aboard a sinking ship.
While things may not be that bad, it does seem like investors are in for rough seas. According to a Mint report quoting a former senior employee of the company, there may be a few more top-level departures. Since this comes on the back of a painful 18-19 months of underperformance for the MindTree stock, quite a few investors may also choose to jump ship.
Since June 2009, MindTree shares have underperformed the CNX IT index on the National Stock Exchange by about 50%. While the CNX IT index has more than doubled, MindTree shares have risen by only around 6%.
To start with, the company couldn’t capitalize on the sharp depreciation in the rupee in 2008-09, thanks to its overly large forex hedges. Besides, after the financial crisis, the company has underperformed and volume growth has been sluggish owing to the industry-wide move towards vendor consolidation.
While most IT firms have done well in the recovery after the financial crisis, MindTree has continued to struggle, thanks to its unsuccessful venture into telecom products. The company reversed its decision to develop a smartphone and incurred a restructuring charge of $3.7 million (around Rs17 crore today) last quarter. While analysts were relieved with the decision to withdraw, they were nonetheless disconcerted about the related losses.
MindTree’s operating profit is estimated to drop by 22% in the current financial year, according to Anand Rathi Securities’ estimates. Because of the transition at the top and the likely churn, the firm’s performance may continue to be lacklustre at least in the near-term. Likewise, the company’s stock is likely to underperform its peers in the sector.
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