EW Mindtree, good business but expensive valuations: Barclays

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Published: April 18, 2015 12:10:57 AM

Maintain ‘equal weight’ on Mindtree with a revised 12-month price target of R1,440 based on on 16x FY17 EPS applied to our revised...

Maintain ‘equal weight’ on Mindtree with a revised 12-month price target of R1,440 based on on 16x FY17 EPS applied to our revised FY17 EPS.

Our 16x multiple is at a premium to the historical average P/E, which we believe is justified given the strong operational performance and solid management execution by the company. We revise our FY16/17 forecasts to incorporate the Q4 results and the new currency estimates (dollar-rupee FY16 estimate at 64.5 versus 61 earlier). While we like the business, current valuations do not leave any margin for the error. The business could be robust but expensive valuations force us to maintain our rating.

Q4 revenue came in at $147.8 million led by a strong volume growth. Management noted that FY16 revenue growth should be higher than the Nasscom estimate of 12-14% y-o-y, and revenue momentum should track along expected lines in Q1FY16. Margins in Q1FY16 will likely be impacted by visa costs and FY16 overall margins would be lower than FY15 due to reinvestments in the business.

Deals of $164 million were signed in the March 2015 quarter. Management further highlighted that it is witnessing certain softness in the demand environment led by weakness in ‘Run-the-Business’ segment. Revenue from its top client increased by a healthy 5% q-o-q while that from top five customers declined by 0.5% q-o-q.

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