KR Choksey has given Buy recommendation for Mindtree with a target price of Rs. 5263 in its research report issued on Oct 14, 2021

KR Choksey’s research report on Mindtree

Mindtree (MTCL) has shown a stellar performance in Q2FY22 and beats the streets estimate. Dollar Revenue was up 12.8% to USD 350mn (KRChoksey est. USD 337mn). Rupee revenue grew by 12.9% QoQ to INR 25,862mn (KRChoksey est. INR 24,929Mn). Reported operating margin expanded by 43bps to 18.2% QoQ backed by healthy growth and operational efficiencies, partially offset by wage hike and cross currency movements. Reported Net profit grew by ~16.2% QoQ to INR 3,989mn (KRChoksey est. INR 3,585mn) with margin of 15.4% (up 44bps on QoQ basis). 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. Total Contract Value (TCV) was USD 360.0Mn for Q2FY22, up 18.8% YoY. BFSI, Retail and Consumer Products offer the opportunities for multi-year annuity deals. Retail and Consumer business experienced seasonality and pent up demand, led by project backlog but Healthcare witnessed higher growth due continuous investments in the identified targeted markets in the Q2. We expect to see the supply crunch to stay in the near term but management has initiated Mindtree Edge Program to tackle the higher attrition rate. Our target price of INR 5,263 is based on 48x Mar-24E EPS with EPS CAGR of 15.8% over FY22-24E.


MTCL is currently trading at a valuation with a P/E multiple of 50.9x/39.7x 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 (earlier target of INR 4,430), an upside of 20.6% over the CMP. We upgrade Mindtree from an “ACCUMULATE” rating to “BUY rating”.

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