Buy MindTree; target of Rs 800: Emkay

“MindTree mgmt indicate that the strength in the IT Svcs continues (reported a 3% QoQ US$ rev growth in June’12 qtr and has driven growth through FY11/12 recording a 31%/37% YoY US$ rev growth) with co continuing to see good traction both in the Manufacturing and the BFSI space (note that MindTree derives ~8- 9% of overall rev from the Insurance segment). We highlight that Mind Tree’s strong growth in IT Svcs is being aided by strong client mining with top 5/10 clients growing by 11/9% CQGR through the past 5 qtrs V/s 4% CQGR at the co wide level with contribution from top 10 clients increasing by ~900 bps over the period). Co is not seeing any untoward cancellations in PES segment recently and expects to report a seq rev growth in the segment in Sep’12 qtr along with reporting flat rev in FY13.”  

“MindTree continues to maintain its FY13 rev growth outlook of 11-14% which entails a ‘relatively stiff’ 4-6% CQGR through Q2-Q4FY13 which in our view remains hinged on closure of certain large engagements that MindTree is pursuing currently. In this context, MindTree has made several senior hiring’s to bolster both large deal pursuit as well as drive further traction with strategic client accounts( refer table below). We highlight that street (including us) continue to build in <11% US$ rev growth for MindTree given the tough arithmetic. Management also indicated that it has hired ~250 freshers in Sep’12 qtr and expects the joining of ~3,000 freshers could be pushed to Q1/Q2FY14 given both ‘lower than budgeted’ volume growth/ employee turnover.”  

“Despite a 100%+ upmove since our initiation in Oct’11 and a 50/90% upside in the past 6M/12M, we retain BUY on MindTree given continuous improvement in operational performance and see earnings upgrade continuing for a while. We raise our FY13/14E earnings higher by 10/6% each to Rs 76/81 (V/s Rs 70/76 earlier, note that our revised earnings estimates are 8%/6% higher than consensus earnings of ~Rs 70.5/76.2) driven by lower currency resets to Rs 55/$ and Rs 52/$ (V/s Rs 52/$ and Rs 51/$ earlier). We also introduce FY15E earnings at ~Rs 88 with roll over to FY15 driving a raise in our TP to Rs 800(V/s Rs 730 earlier). We retain buy on inexpensive valuations at ~9x FY13/8.5x FY14 albeit do not rule out near term pause in stock outperformance given the strong uptick in the past 6M/12M,” says Emkay Global Financial Services research report.

FIIs holding more than 30% in Indian cos

 Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.