Motilal Oswal has given Neutral recommendation for Mindtree with a target price of Rs. 3350 in its research report issued on Oct 14, 2022
Motilal Oswal’s research report on Mindtree
Mindtree (MTCL) reported 2QFY23 revenue of USD422m (up 7.2% QoQ in CC), 210bp ahead of our estimate. Reported USD revenue grew 5.7% QoQ, driven by broad-based growth across verticals, with RCM (+2.9% QoQ in CC) back in growth track. Deal TCV in 2QFY23 was strong at USD518m, up 44% YoY, and aided the company surpass USD1b TCV in 1HFY23. EBITDA margin contracted 10bp QoQ (50bp ahead of MOFSLe) to 21.0%, despite the full impact of wage hikes during the quarter. The company was able to compensate for this through operational efficiency, currency support and reversal of a one-off cost last quarter. Utilization (down 50bp QoQ) and attrition (decline of 40bp QoQ to 24.1%) were broadly stable. MTCL’s management indicated that it has started to witness some softness and caution in parts of the business (especially in Europe), although these appear to be transitory in its opinion. Management remained confident that MTCL will be able to take advantage of the acquired projects that are cost-saving in nature, thereby boosting both performance and TCV. Strong commentary in other verticals, deal pipeline, and TCV should help it deliver a solid revenue growth in FY23E, as we expect USD revenue CAGR of 16.5% over FY22-24. MTCL should keep its profitability within a narrow range going ahead, which will help it absorb any adverse macro impact. Good revenue growth and stable margin should help it deliver 23% PAT CAGR in INR terms over FY22-24E.
Outlook
We maintain our Neutral rating on MTCL due to its fair valuations (based on 22x FY24E P/E), softness in Retail and constrains on management bandwidth because of its impending merger with LTI. We raise our FY23/FY24 EPS estimates by 3%/6% due to strong growth and margin beat. As the stock is trading at 22x FY24E EPS, we see limited upside hereafter. Our TP of INR3,350 is premised on 22x FY24E EPS.
More Info
At 17:30 Mindtree was quoting at Rs 3,374.45, up Rs 50.95, or 1.53 percent.
It has touched an intraday high of Rs 3,472.30 and an intraday low of Rs 3,343.80.
It was trading with volumes of 54,402 shares, compared to its thirty day average of 30,397 shares, an increase of 78.97 percent.
In the previous trading session, the share closed down 0.67 percent or Rs 22.25 at Rs 3,323.50.
The share touched its 52-week high Rs 5,059.15 and 52-week low Rs 2,650.00 on 18 November, 2021 and 26 May, 2022, respectively.
Currently, it is trading 33.3 percent below its 52-week high and 27.34 percent above its 52-week low.
Market capitalisation stands at Rs 55,663.45 crore.