Mindtree Shares: Mindtree shares gave up initial gains after it surged 3 per cent in early trade on Tuesday as investors cheered the IT company’s fourth-quarter earnings, with the firm’s consolidated net profit climbing 49.1 per cent year-on-year to Rs 473.1 crore for the period. The shares later fell over 2.6 per cent to Rs 3,858 apiece on BSE on Tuesday, erasing opening gains even as the IT company’s Q4 results met analysts’ expectations. The stock opened at Rs 4,080 apiece, up 3 per cent from previous close.
Mitul Shah, head of research at Reliance Securities, said: “Mindtree reported a decent performance in 4QFY22 with EBIT margin coming in at 18.9 per cent, 20bps above our estimate of 18.7 per cent.” Revenue grew by 5 per cent QoQ/33 per cent YoY in USD to US$384mn, 0.8 per cent below our estimate of US$387mn (consensus US$386mn). Sequential constant currency growth came in at 5.2 per cent vs. our estimate of 5.6 per cent. (consensus 5.5 per cent).
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Shah at Reliance Securities said that ” We expect the company to report FY21-FY24E revenue CAGR of 21 per cent, against FY17-FY20 CAGR of 11.8 per cent. The revenue contribution from top clients remained flat QoQ at 24.9 per cent which is high compared to the mid-cap peer group. We believe the risk-reward is unfavorable given its premium valuation. Thus, currently, we have a SELL rating on the stock with a 1-Yr target price of Rs 4,000, valuing the stock at 32x FY24E earnings.”
What Should Investors Do As the Stock Turns Volatile?
ICICI Securities – Rating Hold; Target Price: Rs 4,167; Upside Potential: 8 per cent
ICICI Securities expects Mindtree to continue to deliver industry-leading growth along with a strong operating performance in FY23E as well. The brokerage firm said that it was impressed by Mindtree’s consistency and disciplined execution on profitability, and believes it is moving from discrete initiatives to transformation at scale which increases cross-selling opportunities with clients. It valued Mindtree at 32x on FY24E EPS of Rs 130 to arrive at a target price of Rs 4,167, and maintain its ‘HOLD’ rating.
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Nirmal Bang – Rating: Sell; Target Price: Rs 3,120; Downside potential: 19.2 per cent
Nirmal Bang believes that tighter spending may lead to some recalibration of digital spending and affect demand in 2HFY23/FY24. Unlike Tier-1 companies, Mindtree did not indicate any decline in absolute attrition, but Nirmal Bang believes that the aggressive fresher hiring will help in stabilising attrition along with ensuring capacity for a robust demand pipeline. Post 4QFY22, its estimates remain almost unchanged for FY23E/FY24E. The firm kept the target price of Rs 3,120 (21.8x March‘24E EPS unchanged, which is 10 per cent discount to that of TCS’ target multiple). It maintained a ‘SELL’ rating.
Motilal Oswal Financial Services – Rating: Neutral; Target Price: Rs 4,230; Upside potential: 9.6 per cent
Motilal Oswal Financial Services said that the management’s increased focus on annuity revenue and strategic accounts is reflected in its revenue and client mix. A strong outlook on strategic accounts, decent deal signings, and the ability to sustain improved margins are key positives. The stock is currently trading at 28x FY24E EPS. As the key positives are already captured, the research and brokerage firm sees limited upside hereafter. Its target price of Rs 4,230 per share implies 30x FY24E EPS. It maintained a ‘NEUTRAL’ rating.
