Mindtree Shares Hit A Record High On Bullish Analyst Ratings After Q1 Results

Mindtree Campus. (Source: BloombergQuint)

Mindtree Shares Hit A Record High On Bullish Analyst Ratings After Q1 Results

Mindtree Ltd.’s stock jumped to a record high as analysts remained bullish on the information technology company, citing improved revenue and record deal wins in the quarter ended June.

Its revenue in dollar terms rose 7.7% sequentially to $3,210.5 million in the April-June period, while net profit increased 7.5% to $46.5 million, according to its exchange filing.

The strong Q1 numbers demonstrated the resilience of the business in a challenging environment, according to Debashis Chatterjee, chief executive officer and managing director at Mindtree. The record high order book of $504 million, he said, is indicative of the focused execution of the company’s strategy and client centricity.

The analysts, however, cited interest rate hikes by the U.S. Federal Reserve, cost headwinds and a rise in travel and discretionary expenses, among others, as risks for the IT company.

Of the 39 analysts tracking the company, 16 recommend a ‘buy’, 13 suggest a ‘hold’ and 10 have a ‘sell’ rating, according to Bloomberg data. The average of the 12-month consensus price targets implies a downside of 10.9%.

Shares of Mindtree rose as much as 9.3% to a record high of Rs 2,728 apiece, before paring gains.

Here’s what analysts have to say about Mindtree’s first-quarter results...

Goldman Sachs

  • Recommends ‘buy’ with a 12-month price target of Rs 2,863 apiece.

  • Strong dollar revenue growth of 7.7% QoQ led by growth across industry verticals and client metrics.

  • Highest-ever order book at $504 million augurs well for the firm.

  • Margins were weaker because of the rise in sub-contracting costs.

  • Management reiterated FY22 outlook for strong double-digit industry leading revenue growth with more than 20% margin.

  • Earnings reflect strong digital demand amid tight labour market.

  • Cuts earnings per share estimates by 2-3% due to higher employee and sub-contracting costs.

  • Strong digital capabilities, revival in travel and hospitality segments to aid growth.

Morgan Stanley

  • Maintains ‘overweight’ with a price target of Rs 2,800 apiece.

  • Q1 revenue growth and margin stronger than expected.

  • Revenue growth broad-based across geographies and verticals.

  • Diversification of client base to reduce revenue dependence on top clients.

  • $504 million deal wins in the quarter is the strongest-ever for Mindtree.

  • Margin resilience despite challenges a major positive.

  • Sees room for consensus upgrades of revenue forecasts.

  • Raises long-term growth forecasts for Mindtree by up to 3 percentage points.

Edelweiss

  • Recommends ‘buy’ with a 12-month price target of Rs 2,850 apiece.

  • Confident of Mindtree’s long-term prospects driven by sustainable growth and execution capabilities.

  • Company strongly positioned to benefit immensely from the strong tech-upcycle.

  • Revenue growth of 7.7% QoQ and margin at 17.7% broadly in-line with estimates.

  • Company witnessing accelerated digital adoption and robust pipeline.

  • Strong demand and execution to lead to industry leading profitable double-digit growth in FY22.

  • Strong growth momentum across all segments.

  • Highest-ever quarterly increase in headcount and rise in sub-contracting costs to moderate in the medium term.

Motilal Oswal

  • Maintains ‘neutral’ with a target price of Rs 2,620 apiece.

  • Stellar revenue in the June quarter.

  • Deal wins imply continuing growth momentum.

  • Increased investments a drag on margin.

  • High employee addition implies the conviction of the management on demand environment and growth prospects.

  • Strong demand in cloud combined with strong deal wins to drive dollar revenue growth of 23% YoY in FY22.

  • Steps to stabilise client and employee count is a crucial factor driving sustainable growth.

Also read: Mindtree Q1 Review - Stellar Revenue, Deal Wins Imply Continuing Momentum: Motilal Oswal

Anand Rathi

  • Maintains ‘hold’ with a target price of Rs 2,730 apiece.

  • Raises FY22/FY23 estimates by 6% each and multiple to 31x.

  • Growth broad-based across verticals and client buckets.

  • Strong FY21 from a margin perspective, signs of growth tailwinds visible in FY22 so far.

  • Key risks: Potential large M&A or currency headwinds.

Prabhudas Lilladher

  • Recommends ‘buy’ with a target price of Rs 3,229 apiece.

  • Impressed by highest organic growth among peers.

  • Confidence in sustaining Ebitda margin above 20% in FY22 augurs well.

  • Strong recovery in BFSI and travel segments to aid sustainable growth.

  • Mindtree can deliver industry leading growth in FY22.

  • Revenue trajectory can considerably shift upwards in the medium term.

  • Mindtree’s investments in Europe yielding results.

Also read: Mindtree Q1 Review - Results Blaze Past All Expectations: Prabhudas Lilladher

Nirmal Bang

  • Recommends ‘sell’ with a target price of Rs 2,316 apiece.

  • Story of Mindtree is one of revenue growth from here on.

  • PE multiples already at 10-12 year highs.

  • Higher PE multiples may sustain due to upward shift in revenue and earnings growth trajectory.

Key Risks

  • Organic growth likely to be slower in medium term as spends are pulled forward.

  • Higher corporate taxation in the U.S., as planned by Biden-administration likely to have an adverse impact on US customers.

  • Growth likely to settle to mid-single digit territory in dollar terms.

  • Earlier-than-expected and sharp increase in interest rates by the U.S. Fed to deflate enterprise tech valuations.

Kotak Institutional Equities

  • Recommends ‘sell’ with a target price of Rs 1,900 apiece.

  • Broad-based 7.7% QoQ revenue growth (in dollar terms) very impressive.

  • Onboarding of 3,442 employees in just one quarter a positive.

  • Growth led by customer access service, indicating uptick in digital marketing and interactive services.

  • Strong TCV aided by seasonal uptick in clients in hi-tech and retail/CPG verticals, high renewals and close of certain delayed deals in the earlier quarter.

Key Risks

  • EBIT margin profile seems unsustainable while valuations are expensive.

  • Cost headwinds, possible decline in utilisation rates and increase in travel and discretionary costs are major challenges.

  • Stock trading at an expensive 26 time June 2023 expected EPS.

ICICI Direct Research

  • Upgrades stock from ‘hold’ to ‘buy’ with a 12-month target price of Rs 3,065 apiece.

  • Mindtree to benefit from robust growth in cloud, data and experience.

  • Well poised to clock industry leading double digit revenue growth and 20%+ margins.

  • Healthy order book led by closure of certain deals.

  • Robust hiring indicative of health demand in the ecosystem.

Also read: Mindtree Q1 Review - Robust Revenue Growth: ICICI Direct

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