Mindtree Q2 Results: Shares Hit Record On Brokerage Optimism After Strong Showing
Mindtree shares hit a record high after strong Q2 showing.
Shares of Mindtree Ltd. hit a record high after the IT company beat estimates in the quarter ended September, prompting analysts to raise price targets.
Q2 Results Highlights (Consolidated, QoQ)
Net income at Rs 398.9 crore vs Bloomberg estimate of Rs 339 crore
Revenue at Rs 2,586.2 crore vs Bloomberg estimate of Rs 2,474 crore
Total costs at Rs 2,190 crore vs Rs 1,898.3 crore QoQ
Ebitda at Rs 531 crore vs Bloomberg estimate of Rs 484 crore
Dividend per share at Rs 10.
“Our revenues in the second quarter were up 34.1% year-on-year, which was our highest YoY growth for a quarter in a decade," said Debashis Chatterjee, chief executive at Mindtree.
"We maintained Ebitda margin at 20.5% while making aggressive investments in further expanding our domain, digital and leadership capabilities, geographic footprint, and hyperscaler partnerships. We are well-positioned to capitalise on the strong demand environment and deliver profitable, industry-leading growth in FY22," he added.
Shares of Mindtree gained as much as 10%, the most since Oct. 8, 2020, to Rs 4,800.2 apiece.
Of the 42 analysts tracking the company, 16 have a ‘buy’ rating, while 13 each suggest ‘hold’ and ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies a downside of 16.6%.
Here's what analysts made of Mindtree's Q2 performance:
Morgan Stanley
Maintains ‘equal weight’ stance, raises target price to Rs 4,500 from Rs 4,250, implying potential returns of 3%.
Results were stronger than expectations and management commentary was constructive on revenue growth. Supply side challenges could pressure margins in the second half, limiting earnings per share upgrades.
High valuation multiples make risk-reward balanced.
Liked the strategy to diversify growth across client base. It seems to be working in the right direction with top client revenues almost flat quarter-on-quarter, while the company witnessed strong growth across other client buckets within top 20 clients.
Margin performance was quite resilient and the company maintained its Ebitda margin outlook of 20% in FY22 despite continuing supply-side challenges.
Key concerns are increase in attrition rates, which could further inch up in Q3. While the company will continue to see campus intakes, the cost of backfilling attrition will keep margins under pressure in the second half. Solid 2Q performance was supported by a lot of short-term project-related work from clients.
The stock trades at a 15% premium to large caps such as TCS and Infosys. In the current environment, we believe risk-reward is balanced.
Prabhudas Lilladher
Maintains ‘buy’ rating, raises target price to Rs 4,804 from the earlier Rs 4,593, implying potential returns of over 10%.
Exceptionally strong industry leading double-digit sequential growth; highest organic growth of 12.1% quarter-on-quarter among peers.
Mindtree reported an exceptionally strong beat in revenue partly aided by project backlogs as economies opened after extended lockdown, especially in the Europe region, which also posted strong growth.
Earnings per share estimates have increased by 5% in FY22 led by strong beat in revenue and margins in this quarter. "Our EPS estimates remain intact for FY23/24."
Mindtree was already ahead by 12% compared to FY23/24 consensus EPS estimates. "We expect massive upgrades in consensus EPS estimates."
Phillip Capital
Maintains ‘buy’ rating, raises target price to Rs 5,000 from Rs 4,510 earlier. This implies potential returns of 15%.
Mindtree reported double-digit quarter-on-quarter growth, which most companies in the sector weren't able to deliver in year-on-year terms two years ago. It is a testimony to the current strong demand environment and Mindtree capturing it handsomely.
Margins expanded despite wage hike while profit was significantly ahead of expectations. Our thesis of margin expansion and recovery in the travel segment have played out well.
There is enough near-term play left in the stock, as it anticipate more EPS upgrades. Expects Mindtree's eventual merger with L&T Infotech to provide long term upside.
Continues to remain positive on the sector, seeing it at the cusp of unprecedented demand environment, triggered by compressed digital transformation.
Revises FY22/23 estimates (7%/5%) on revenue beat in this quarter and bright outlook. "We also upgrade our target multiple for Mindtree to 40x average of FY23 and FY24 PE (earlier 38x) -- highest in our coverage universe."
Motilal Oswal
Maintains ‘neutral’ rating, raises target price to Rs 4,460 per share, implying an upside of 2%.
Mindtree delivered another excellent quarter, with a revenue of $350 million, driven by broad-based growth across verticals and regions. The only pocket of weakness in Q2 was in its top client share, which now accounts for 24% of revenue.
The neutral rating is due to its fair valuations as well as relatively higher client concentration, although it is moving in the right direction.
Upgrades our FY22E/FY23 EPS estimate by around 7% as we raise our growth estimates on the back of a beat in Q2 and strong management commentary for FY22E. Our margin estimates are slightly higher, given the strong margin performance in Q2, despite the wage hike.
Sees Mindtree benefiting from strong demand in cloud (19% of revenue) and broad-based growth across verticals. We expect USD revenue growth of 30% year-on-year in FY22, one of the highest in our coverage universe.
Emkay
Maintains 'sell' rating, raises target price to Rs 3,300 from Rs 3,070, implying a potential downside of 24.4%.
Considering rich valuations and anticipated pressure on margins, we maintain 'sell' on the stock.
The company is confident of delivering industry-leading double-digit revenue growth on the back of strong deal wins, healthy deal pipeline and broad-based revenue growth.
Mindtree is confident of sustaining margins above 20% on the back of sustained revenue growth momentum, benefits accruing from working-from-home shift, flattening pyramid (added more than 2,000 freshers in H1) and offshore shift. These factors should negate the impact of rising costs of talent, higher subcontracting costs considering strong demand and tight job markets, and investments in front-end sales and identified white space opportunities.