Axis Capital: Upgrade Mindtree to ‘add’ with revised TP of Rs 740

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Published: September 19, 2019 3:00:45 AM

There has been no significant attrition after the management changes. We believe the existing client engagement model of Mindtree provides resilience and limited vulnerability from attrition if any.

Axis Capital, Mindtree, market news, L&T, BFSI, CPG verticalL&T and Mindtree teams have met top clients and employees across the development centers to address their anxieties after the exit of Mindtree’s founders.

We met with the management of Mindtree to get business update on-demand environment and insights on de-risking the transition. The new management team has worked to reduce the disruption due to transition which includes meeting stakeholders (clients and employees) over last two months. We see challenges to mitigate further as earnings improve.

We believe strong deal wins — Q1FY20: $324 millionn — would help accelerate revenue momentum along with margin expansion. The transition has been managed well by L&T and the new Mindtree team. We see a favorable risk-reward. Upgrade to ‘add’ with revised target price of Rs 740.

The CEO sees no major reason to make any change in the leadership team of Mindtree. L&T and Mindtree teams have met top clients and employees across the development centers to address their anxieties after the exit of Mindtree’s founders. There has been no significant attrition after the management changes. We believe the existing client engagement model of Mindtree provides resilience and limited vulnerability from attrition if any.

The deal pipeline continues to be strong and deal closures are not witnessing any major delays. The management is confident of improving growth trajectory in FY20 after muted Q1FY20. (i) BFSI): Strong outlook for insurance (Duck Creek partnership helping in momentum) with overall vertical to grow in line with the company’s average; (ii) Travel & Transport: Strong deal win and pipeline indicate steady revenue momentum with growth expected to remain stronger than company’s average; (iii) Retail, CPG and Manufacturing: The growth outlook continues to be stronger for CPG vertical.

Retail is expected to gain momentum as clients continue to spend despite multiple headwinds. However, the manufacturing vertical is expected to remain soft on global trade concerns as clients remain skeptical on recovery and (iv) Hi-tech: Despite muted outlook from top clients in the near term, the growth outlook from other hi-tech clients is positive. We expect double digit revenue growth for Mindtree in FY20.

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