Apr 22, 2013, 07.34 PM | Source: Moneycontrol.com

Reduce Mindtree; target Rs 800: Dolat Capital

Dolat Capital has recommended reduce rating on Mindtree with a target price of Rs 800 in its April 22, 2013 research report.

Dolat Capital has recommended reduce rating on Mindtree with a target price of Rs 800 in its April 22, 2013 research report.

"Mindtree has indicated better forecast for FY14 over FY13 supported by strong recovery in PES business segment based on deal won and better client relationship management. It has also indicated stable margins despite strong hiring plans and wage likely hikes due in the month of June. We believe the optimism in the stock has been well ahead of any meaningful business recovery and thus pose a threat in case of weak deal rampups.

Operating results inline: Mindtree declared its Q4FY13 results inline with expectations with a reported revenues growth of 3.8% QQ owing to strong volumes pick up (up 3.7% QQ) and favourable Fx realizations (as most of the old value contracts exited) of about 1% during the quarter.

Recovery in FY14: Management has indicated recovery in the demand in the PES segment (also better year for the entire business) based in pipeline addition and new deal wins in the segment. The qualitative outlook indicates 10%+ growth for FY14 which we believe should be still lower than other peers (KPIT, Persistent, Eclerx).

OPM sustenance holds the key: Mindtree has witnessed about 620bps improvement in its OPM for FY13 over FY12 driven by minor efficiency and Fx gains, sustenance of which we believe holds the key as the recent rise in the stock has been largely on earnings growth which was well ahead of revenue growth. We have build in 110bps decline in OPM systemically over next 8 quarters. We maintain our sector underperformer (among small cap stocks) on the stock with a target price of Rs 800 valued at 8.5x of FY15E earnings," says Dolat Capital research report.

Institutional holding more than 40% in Indian cos

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