Prabhudas Lilladher has given Buy recommendation for Mindtree with a target price of Rs. 2567 in its research report issued on May 27, 2021
Prabhudas Lilladher’s research report on Mindtree
In their analyst meet hosted yesterday, Mindtree management exuded confidence on delivering industry-leading growth and 20%+ EBITDA margin for FY22E. The strong guidance is aided by strong order book, all-time high deal pipeline, recovery in travel and sharp focus on 4x4x4 strategy which is yielding results – 1) improved ability to expand wallet share 2) strengthened presence in Nordics and DACH and 3) deriving hyper growth from Hyper scalars. Management has identified several white space opportunities for growth – 1) Incubation of healthcare vertical, 2) strengthening capabilities in IT Security and Enterprise Applications, 3) Expansion in Middle East (UAE), Australia and Japan, and 4) Addition of IoT led Industry 4.0 capabilities from acquisition of L&T Group’s NxT (Please refer our detailed note on NxT acquisition) (Click on the Link for the Report) There is no impact on delivery due to second COVID wave aided by 1) increasing number of fixed annuity based projects which gives them flexibility to re-purpose talent and 2) sufficient trained bench pool due to aggressive hiring and upskilling / re-skilling done in past six months. Headwinds of wage pressure due to talent war can be offset by levers such as pyramid optimization, operational efficiency program, re-skilling and up-skilling talent and revenue growth leverage. Pricing remains stable as increasing number of engagements are longer duration, strategic in nature with outcome based pricing.
We continue to value MTCL on 24X (20% discount to LTI) multiple for FY23 earnings of INR 107 to arrive at a TP of INR 2567. MTCL is currently trading at 25.6/20.6X earnings of INR 86.1/ 107 for FY22/23 respectively with EPS CAGR of 26% for FY21-23E.