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Mindtree Gains Most In Six Weeks As Q2 Results Lifts Analysts’ Sentiment

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Shares of Mindtree Ltd. gained the most in six weeks on Friday as strong deal booking and impressive margin performance during the second quarter lifted analysts’ sentiment.

In terms of the same currency, the IT services company’s second quarter revenue grew by 7.2% QoQ. U.S. dollar revenue grew 5.7% QoQ, aided by broad-based growth across verticals.

EBIT margin saw a modest contraction to 19.13% from 19.16% despite the impact of wage hikes during the quarter.

Mindtree Q2 FY23 (Consolidated, QoQ)

  • Revenue up 8.9% at Rs 3,400.4 crore compared with Bloomberg estimate of Rs 3,289.97 crore.

  • EBIT up 8.8% at Rs 650.6 crore versus Bloomberg estimate of Rs 601.72 crore.

  • EBIT margin 19.13% versus 19.16% and Bloomberg estimate of18.29%.

  • Net profit up 7.9% at Rs 508.7 crore compared with Bloomberg estimate of Rs 476.58 crore.

Analysts remained positive on the stock post the Q2 results, citing strong deal booking, impressive margin performance, focus on cost optimisation, and pyramid rationalisation. They also expected the announced merger with L&T Infotech to lead to revenue synergies.

Shares of the company rose over 4.3%, the most since Aug. 30, to Rs 3,451 apiece as of 10:30 a.m., while the Nifty rose 1.48% on the NSE. Trading volume over six times the 30-day average so far in the trading session.

Of the 41 analysts tracking the company, 19 maintain a ‘buy’, 13 suggest a ‘hold’ and nine recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies a downside of 0.8%.

Here is a gist of brokerages’ view on the stock

Nomura

  • Reiterates ‘neutral’ and raises target price to Rs 3,170 from Rs 3,000, an implied downside of 8.12%

  • Q2 performance beat estimates at both revenue and margin levels.

  • Revenue performance remained strong despite the weakness in retail vertical.

  • Believes that deal bookings remain strong and margin performance is impressive.

  • Continued focus on cost optimistion, pyramid rationalisation and sales efforts towards profitable account are key positives driving margin stability.

  • Expects EBIT margin of 19.2% in FY23F

  • Company says that it is in advanced stages of regulatory approvals for its announced merger with L&T Infotech and expects it to close by December 2022-end.

  • Expects merger to lead to revenue synergies in the combined entity.

  • Raises FY23-24 EPS by 2-5% to factor in better margin and raises target price by 5%.

  • Prefers Persistent Systems in the mid-cap space.

Phillip Capital

  • Reiterates ‘buy’ and raises target price from Rs 4,350 to Rs 4,520.

  • Believes that all bottom-up data points and commentary alludes to sustained strong demand environment.

  • Believes that a U.S/EU/global recession will only boost the long-term growth potential of IT firms, as it has done historically.

  • Believes that Mindtree is only of the best place Tier-II IT services company to capture the growth opportunity and deliver strong earnings.

  • Upgrades FY23/24 estimates by 2-4% on tweaking USD/INR and higher margin assumptions.

  • The results were perfectly in-line with expectations with margins springing a positive surprises despite the impact of wage hike.

  • TCV was strong and completed the loop of impressive all-round performance.

  • Continues to like the Mindtree story and maintains it as the top pick in IT sector.

  • Expects recently announced merger with L&T Infotech to provide long term upside for the stock.

Morgan Stanley

  • Maintains ‘Equalweight/Inline’ and raises target price from Rs 3,150 to Rs 3,400, an implied upside of 2.3%.

  • The Q2 results were strong with robust deal wins and solid margin execution but premium valuations led to maintaining equal weight and makes risk reward balanced.

  • Raises revenue estimates by 2.1-3.8% and margins by 41-69bps, leading to EPS increase by 2.7-7.5% over FY23-25.

  • Broad based growth across verticals except for retail segment drove revenue growth.

  • Ebitda margin performance remained strong despite wage hike impact.

Source: Bloomberg, Exchange filing, Brokerage notes



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