Buy MindTree; target of Rs 800: Prabhudas Lilladher

“MTCL expects to deliver mid-single digit volume growth largely led by IT Services in Q2FY13. Moreover, PES is expected to return to growth (ramp-downs bottomed out) post witnessing de-growth in the previous quarter. The company has guided for growth in NASSCOM’s guidance range of 11-14% YoY growth. Due to higher offshore presence, the company has lesser seasonality in H2FY13 compared to other IT services player. The company is witnessing good growth in BFSI and Manufacturing, but, softness in Travel & Media vertical. Currency tailwind and margin lever (utilization) is expected to help MTCL to offset margin tailwind from the wage hike in Q2FY13.”

“The company is expected to deliver flattish margin. Forex loss in the quarter as compared to gain could erode the bottomline. However, the company is not seeing any pricing pressure from either existing or new clients. The company may moderate fresher joining as the utilization continues to be at 69%. The company has given ~3k fresher offers for FY13 and expects ~250 to join by Q2FY13.MTCL is seeing some early signs of success in large deals (US$25m+). The company was among the top 2-3 shortlisted IT vendors for some of the large deals but failed to convert the same. We see this as a positive; however, we may need to wait for 1-2 quarters more before we see positive traction from their investment in large deal’s team. The company is currently chasing 2-3 such large deals.”  

“There are some early signs of success for the new large deal pipeline. Renewed focus on the core business has pushed the performance ahead of peers. We limit risk to our EPS estimate for FY13. We revise TP of Rs800 (from Rs700), 10x FY13e earnings estimate,” Prabhudas Lilladher research report.

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