Stock corner: Retain ‘buy’ on Mindtree, revised target price of Rs 853

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Published: October 18, 2019 2:37:01 AM

We are enthused by the new management’s capability and believe Mindtree is firmly set to clock robust growth going forward. Led by the strong revenue momentum, despite corporate upheavals, we revise up FY20/FY21E revenue 3.5/4.8%.

Stock corner, Mindtree, target price, EBITDA, market news, Mindtree share, Mindtree news, Mindtree Retain ‘buy’ with revised target price of Rs 853 (Rs 824 earlier) as we roll over to Q4FY21E.

Mindtree reported a resilient set of Q2FY20 numbers—while 2.7% Q-o-Q dollar revenue growth beat Street’s 2.6% estimate, the 40bps Q-o-Q adjusted EBITDA margin jump to 13.0% surpassed the 12.9% estimate. Digital, up 16% Y-o-Y, now constitutes 38% of revenue. While revenue spurt was, yet again, spearheaded by momentum in the top account, adjusted margin expansion QoQ was mostly led by forex gains as operational efficiencies offset wage hike impact.

We are enthused by the new management’s capability and believe Mindtree is firmly set to clock robust growth going forward. Led by the strong revenue momentum, despite corporate upheavals, we revise up FY20/FY21E revenue 3.5/4.8%.

The stock is trading at 19.7x FY20E EPS. Retain ‘buy’ with revised target price of Rs 853 (Rs 824 earlier) as we roll over to Q4FY21E. Top client steady; recovery in others anticipated: Mindtree clocked a 10.2% Y-o-Y revenue growth, led by strong show in hi-tech & media (up 11.5% YoY, dollar terms) and travel & transportation (up 11.4% Y-o-Y). BFSI, up 6.2% Y-o-Y, saw most of its growth coming from the insurance sub segment and Tier II banking clients. The top client, Microsoft, posted yet another robust quarter (up 12.3% Y-o-Y) and drove most of Mindtree’s growth.

While top client’s stability remains critical for the company, fixing leakage in other top accounts remains a priority and will be keenly monitored.

Margin to improve further in H2FY20: Adjusted EBITDA margin expanded 40bps QoQ as impact of wage hikes (150bps) was more than offset by operational efficiencies (150bps) and forex tailwinds (40bps).

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