Motilal Oswal has given Neutral recommendation for Mindtree with a target price of Rs. 4460 in its research report issued on Oct 14, 2021
Motilal Oswal’s research report on Mindtree
MTCL delivered another excellent quarter, with a revenue of USD350m (+12.8% QoQ, est. 8.3%), driven by broad based growth across verticals and regions. The only pocket of weakness in 2QFY22 was in its top client (flat QoQ), which now accounts for 24% of revenue (exposure down by ~600bp v/s the peak in 1QFY21). Deal TCV stood at USD360m (-29% QoQ/+19% YoY), with a good mix of annuity and transformational deals. EBITDA margin rose 20bp sequentially, despite the impact from a wage hike. Margin in 2QFY22 was aided by operating leverage and currency benefits, which was partially offset by a wage hike (~140bp QoQ). EBIT margin benefitted from lower depreciation, given the strong growth. -Net additions (2,476, +9% QoQ) were strong in 2QFY22. MTCL added ~2k freshers in 2HFY22, which is expected to continue. During our AGIC, the management had indicated that it plans to hire 4-5k freshers in FY22. This implies continued management conviction on the demand environment.
The stock is currently trading at 37x FY23E EPS. It has been one of the best performers in the IT sector in the last one-year, with returns of 175%. The key positives are already captured and we see limited upside hereafter. Our TP of INR4,460 per share implies 38x FY23E EPS. We maintain our Neutral rating.