Shares of Mindtree Ltd. fell the most in seven months as analysts remained cautious on the mid-sized IT company, citing persistent weakness among top clients.
The company’s net profit rose 19.1% quarter-on-quarter to Rs 253.7 crore in the July-September period. Its revenue in dollar terms rose 3.1% to $261 million, while EBIT jumped 11.6% to Rs 321.5 crore.
Its growth in constant currency terms for the quarter stood at 2.1%.
Of the 38 analysts tracking Mindtree, 16 have a ‘buy’ rating, nine suggest a ‘hold’ and the rest recommends a ‘sell’. The average of Bloomberg consensus 12-month target price is 3.9%. Shares ended the trading day 6.6% lower at Rs 1,331, down for the third straight day. The stock had fallen as much as 11.4% in early trade.
Here’s what brokerages had to say:
UBS
- Maintains sell rating
- Price target at Rs 805 apiece
- Continues to target profitable growth in the second half of FY21
- Softening trends in top customer likely to raise concerns
- Top customer has a significant contribution to revenue
- Softer contract s are likely to add to investor concerns on revenue outlook
Citi
- Maintains sell rating
- Price target raised to Rs 1,195 from Rs 1,150 apiece
- Q2 results were largely in line with estimates
- Raises EPS estimates for FY21, FY22, FY23 by 7%, 4% and 4%, respectively, given higher-margin trajectory
- Weaker trends versus large caps, particularly given headcount decline
- Top client exposure continues to be a risk
- Any pressure on the top client can lead to de-rating
- Sustaining margins at current levels will be difficult, given wage hikes across the sector
Motilal Oswal
- Downgrades to neutral from buy
- Price target at Rs 1,550 apiece
- Management commentary to sustain margins despite wage hikes is encouraging
- Deal wins stable, the deal pipeline remains healthy
- Persistent weakness in the top 2-10 client bucket remains a concerns
- An unexpected decline in top client chips away at bull case
- High exposure to travel, transport and hospitality to remain a drag on overall recovery
- Upgrades FY21 and FY22 EPS estimates by 4% and 3% to adjust for margin surprise
- Key positives are already captured and see limited upside
Investec
- Downgrades to sell from hold
- Price target raised to Rs 1,255 from Rs 1,020
- Business mix likely to continue to improve offshore
- Top client softness impacts broad-based performance
- Current estimates factor in most positives with incremental upgrades unlikely
Emkay
- Assumes coverage with a sell rating
- The price target of Rs 1,330 apiece
- Better operating efficiencies aided margins
- Deal wins remain weak and Q3 is a seasonally weak quarter
- Increased concentration and growing dependency on top client remains a concern
- Revenue growth is skewed and valuations are rich
Dolat Capital
- Maintains sell rating
- Price target raised to Rs 1,190 from Rs 830
- Commentary encouraging but not evident across metrics
- Soft performance from top clients, sustained weakness in travel verticals and flat total contract is not encouraging
- Current valuations are unwarranted given the volatility in top client and soft total contract
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