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For yet another quarter, tier-two IT company Mindtree Ltd has reported more than 5% revenue growth. In the December quarter, revenue in constant currency terms grew 5.2% sequentially aided by strong broad-based demand environment and a steady ramp-up of past deal wins. In a post earnings conference call on Thursday, the company's management said it was confident of delivering industry-leading double-digit revenue growth going ahead.

Yet, on Friday the stock was down more than 5% on the National Stock Exchange, falling the most among shares trading in the F&O segment, in opening deals.

Analysts said that given the steep run-up in the stock and rich valuations, this earnings performance was disappointing.

"The 188% stock return in CY21 versus ~60% for Nifty IT and 39xFY23E price-to-earnings multiple (versus ~30-32x for TCS/Infosys) indicate that elevated growth expectations have been built into the stock price. Therefore, the revenue growth performance, in our view, has fallen short of elevated expectations," analysts at Nirmal Bang Institutional Equities Ltd said in a report on 14 January. The Street was expecting a 16% sequential growth in constant currency revenue.

Mindtree reported healthy deal wins with a total contact value of $358 million, up around 15% year-on-year, but flat sequentially. The company said it won 10 cloud deals this quarter on back of expanded partnership with one of the hyperscalars.

On the operating performance front, its Ebit margin improved 110 basis points (bps) to 19.2% ahead of the 18.3% consensus estimate inspite of the supply side pressures amid high attrition. One basis point is one hundredeth of a percentage point. The management said it remains confident of delivering 20% Ebitda margins in the medium term.

Analysts at Kotak Institutional Equities are of the view that this operating margin target is aggressive given headwinds from wage inflation and increase in travel and other discretionary costs. "Main levers are pyramid optimisation and tight control on costs. Excess focus on costs can create headwinds to growth. Mindtree aspires to be a growth leader and can afford to be more flexible with costs in our view," said the Kotak report dated 14 January.

Meanwhile, attrition was high at 21.9% in Q3FY22 compared to 17.7% in Q2FY22. On a quarterly annualized basis as well, attrition stood at around 29.5% versus 27% in the previous quarter. That said, attrition was high even among tier-one IT companies Infosys, TCS and Wipro.

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