KR Choksey has given Buy recommendation for Mindtree with a target price of Rs. 5263 in its research report issued on Jan 14, 2022

KR Choksey’s research report on Mindtree

Dollar Revenue was up 4.7% QoQ to USD 366mn (KRChoksey est. USD 339mn). Rupee revenue grew by 6.3% QoQ to INR 27,500mn (KRChoksey est. INR 27,674Mn). Reported operating margin expanded by 107bps to 19.2% QoQ aided by operational efficiencies (+60bps QoQ), and FX tailwind (+40bps) and seem sustainable at this level supported by sustained revenue growth momentum, benefits accruing from the WFH shift, flattening employee pyramid and the offshore shift. The growth in the quarter for Mindtree was broad based and across geographies served, backed by rising appetite for digitization among clients, who seek business innovation for revenue maximization and other strategic outcomes. Deal TCV was at USD 358mn. Since the takeover by L&T, MTCL claims that it has added 75 strategic accounts. MTCL’s growth continues to be driven by Customer Experience and Data Analytics part of Digital rather than the Cloud part and we believe that MTCL is uniquely propositioned to deliver a sustained growth momentum along with reduced dependence on sub-contracting through material headcount addition (especially with aggressive fresher hiring targets) and elevated utilization.

Outlook

MTCL is currently trading at a valuation with a P/E multiple of 53.1x/41.4x on FY23E/FY24E earnings. We expect strong deal outlook for strategic accounts, decent deal signings, continued focus on annuity based revenue models and client mix will help maintain the growth momentum in medium term future and hence we are assigning a P/E multiple of 48x to the FY24 estimated EPS of INR 109.7 to arrive at a target price of INR 5,263 per share, an upside of 15.8% over the CMP. We maintain a “BUY” rating to the stock.

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