Home / Markets / Mark To Market /  Mindtree’s top client comes to the rescue as covid hits key vertical

Shares of Mindtree Ltd fell 3.5% on Tuesday, after the company reported a sharper-than-expected fall in revenue in the June quarter. Revenue fell 9% sequentially in dollar terms, compared to analysts’ estimates of a 7-8% decline.

In an update to the stock exchanges last month, Mindtree had warned that revenue in the June quarter could decline in high single-digits, due to the adverse impact of the pandemic on the travel, transport and hospitality business segment.

As it turns out, the impact on this segment was far greater than Street estimates.

Revenue in the travel, transport and hospitality segment more than halved last quarter.

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The revenue deceleration in travel, transport and hospitality segment was partly offset by the communication, media and technology vertical. Dollar revenue in this segment grew 9% sequentially, generating more than half, or 51% of Mindtree’s revenue in Q1 FY21.

“We believe demand for collaboration platforms (Microsoft Teams etc) owing to work-from-home could have led to a steep surge in the company’s top account," said an analyst, on the condition of anonymity. The worry is that this could be a one-off. Besides, revenues from other large customers in the top 10 bucket fell 12% sequentially.

The revenue share of the top client grew from less than 25% in March to more than 30% in the June quarter. In the backdrop of the large hit on one large business segment last quarter, the increased reliance on one large customer and the communications vertical is looking lopsided.

According to the company, bulk of the hit to revenue was seen in the June quarter. But outlook for the travel and hospitality vertical remains hazy with feeble signs of improvement in the near future.

Encouragingly, Mindtree continues to see decent traction in the communication, media and technology vertical. The decision-making process is taking longer, but the overall pipeline is healthy, the management said. Total order wins of $391 million, more or less similar to the $393 million in the March quarter, are healthy. In a post-results interaction, the management alluded to sustained focus on nurturing and growing the top, and the next set of clients, through deeper engagements and cross-selling of services.

On the positive side, the management expects overall revenue to grow this quarter (Q2 FY21) compared to the previous quarter.

Also, it expects much of the margin gains it saw in the last quarter to sustain as most of the improvement was driven by the operating efficiency measures launched previously.

But given the enormous hit to revenues last quarter, investors would do well to exercise caution going ahead, especially since Mindtree shares are down only 7% compared to their highs earlier in the year.

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