Mindtree aspires for industry-leading growth and 20%+ EBITDA margin for FY2022E. The second wave of Covid did not impact customer billings or deliverables. Mindtree will build on full service model aspiration and expand into new verticals, geographies and services. The strategy is ambitious with significant execution risks. The stock trades at expensive valuations.
Mindtree shared a few interesting points during the call summarized below:
Industry-leading growth with 20%+ EBITDA margins:
The confidence is based on strong deal wins, pipeline and improvement in the travel and transportation vertical. Diversification into health:
Focus is on digital transformation plays for healthcare providers and medical technology/device companies. These are adjacencies since clients in existing verticals are looking to expand in.
See Zee Business Live TV Streaming Below:
Further geographic expansion:
Mindtree will double down on investments in Europe. In addition, the company will gradually expand in APAC, Middle East and Japan. Mindtree has some presence in APAC (Australia) and Middle East (UAE). L&T’s help will be utilized in Japan expansion.
Adding IoT to set of digital capabilities:
IoT capabilities from L&T NxT acquisition will be integrated with existing service line capabilities to add to digital offerings.
Balancing act required between expansion and diffusion of focus:
Mindtree’s broad agenda does not appear to follow the typical template of mid-tier services providers. The company’s goal is to be the business transformation partner of choice for clients, offering end-to-end services. We have noted execution risks to strategy in our earlier notes. Full services provider ambition is reaffirmed by the strategy of expansion into whitespace opportunities outlined by the company – health, consulting, new geos and IoT. Mindtree believes it can unlock significant synergies with expansion. Mindtree will continue to focus on account mining of strategic clients, quality new logos and large deals. A careful balancing act is required to avoid suboptimal outcomes.
Kotak says that Full recovery will take several quarters and requires global vaccination. Domestic travel in the US and Europe is opening up, a positive. Mindtree has not lost clients and will benefit when discretionary spends normalize. Some clients are willing to take a re-look at contracts for pricing increase. Clients are looking at more deals on outcome-based models and are comfortable with longer deal tenure. Mindtree will adopt a work from anywhere framework. This will enable tapping talent across India and not just in existing locations. Delivery will follow no shore distributed mode