Mindtree Stock Slumps As Analysts Flag Top Client Risk
Here’s what brokerages had to say about Mindtree’s Q2 results...
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 values 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 value is not encouraging
- Current valuations are unwarranted given the volatility in top client and soft total contract value