All experts agreed that valuations turned higher after run up in Mindtree, but they still expect more upside due to likely growth on deals and currency depreciation.
The year 2018 has been good for technology stocks after a long period underperformance in the last couple of years. The Nifty IT index itself surged 37.5 percent this year and top gainer among the sector is Mindtree, which shot up nearly 89 percent.
Experts feel there is still more upside on the back of expectations of growth on deals and currency depreciation.
"We are positive on IT sector but only for those companies which are investing in new technologies like digital, robotics, Artificial Intelligence etc," Astha Jain, Senior Research Analyst at Hem Securities told Moneycontrol.
In case of Mindtree, she said the stock has already undergone a big run-up hence suggests investing on dips as the company will continue to perform on bourses given its focus on digital, innovation & humane automation with digital in lead.
Mindtree's 47 percent of revenue is driven by digital sales and deals in digital space have been robust. The growth in digital revenue has been consistently increasing since the quarter ended June 30, 2017. Digital segment contributed 47.5 percent to total revenue in June quarter 2018 versus 34.7 percent in FY15.
A turnaround in the BFSI segment is seen as the company reported a 10 percent QoQ growth in revenues in this segment. Contract signing during the last quarter was at $306 million.
Despite the 50 percent YoY growth seen in the account, management expects more opportunities to grow within the top client.
Apart from BFS (banking, financial and services), another factor that boosted sentiment in the IT exporter is the depreciation in Indian rupee which fell nearly 13 percent year-to-date.
Rostow Ravanan, managing director and CEO of Mindtree believes the underlying growth momentum is strong, and pipeline & deal win ratios are growing. So, he is confident of growth in this year & in the next few years.
The company's deal win ratio has grown to 33-34 percent from 22-23 percent in 2016.
"Our aim is to get back to margins of around 17-18 percent and getting margins back to previous levels may take over a year," he said while expecting bottomline to grow faster than topline in the next few quarters.
MindTree's June quarter profit declined 13.2 percent sequentially to Rs 158.2 crore on weak operational performance. EBIT (earnings before interest and tax) fell 1.7 percent to Rs 188.2 crore and margin contracted 160 basis points QoQ to 11.5 percent but revenue increased 12 percent to Rs 1,639.5 crore and constant currency growth stood at 8.2 percent for the quarter QoQ.
Niharika Ojha, IT Analyst, Narnolia Financial Advisors, expects FY19 revenue will grow by 23 percent and net profit by 26 percent.
For Q2FY19, she expects operational margins to be slightly lower than last quarter, though rupee depreciation may aid the margins by 100bps. "For full year FY19, EBITDA margins are expected around 15.1 percent compared to 13.6 percent in FY18."
Target price for the stock
Astha Jain, Senior Research Analyst, Hem Securities
Our price target for Mindtree is Rs 1,220 in medium term, implying 6 percent potential upside.
In the case of dollar-rupee, we are still positive on the dollar with a target of 72.75 in the medium term.
Prashanth Tapse, AVP Research, Mehta Equities
Technically Rs 1,195 would be near-term target for Mindtree, implying 4 percent upside.
USDINR has given a strong bull move. Now we can see the RSI is in overbought zone and the gold ratio of Fibonacci retracement is near 72.33 a dollar.
We expect USDINR to depreciate from this level and test 69.40 in short term.
Niharika Ojha, IT Analyst, Narnolia Financial Advisors
Given the recent run-up, the company presently trades at 21.2 times FY20 estimated EPS. We have a Neutral rating on the stock with price target of Rs 1,200, implying 4 percent upside.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.