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Mindtree shares jump 5% to hit fresh 52-week high; Motilal Oswal sees further upside

In the calendar year 2020, the stock has gained 27 percent as of February 24 close against a nearly 1 percent fall in the benchmark Sensex.

February 25, 2020 / 12:48 PM IST
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Shares of Indian IT player Mindtree jumped nearly 5 percent to hit their fresh 52-week high of Rs 1,061.80 on BSE on February 25.

The stock has been among the favourites of investors of late. On February 24, the stock closed 3.23 percent down on BSE after snapping the winning streak of the last six consecutive sessions.

In the calendar year 2020, the stock has gained 27 percent as of February 24 close against a nearly 1 percent fall in the benchmark Sensex.

Why is the stock flying high?

Brokerages and industry experts highlight that the company, after Larsen & Toubro (L&T) took its control, has taken positive steps to ensure stability and boost its performance.

Brokerages now expect L&T’s backing to open up new avenues of growth and augment scale in some areas such as BFSI.

"Since July 2019, post L&T took over control, Mindtree has been taking encouraging steps in its journey toward stability on both client and employee counts. December 2019 was the first quarter that demonstrated signs of this stability. Strategy change toward a higher focus on annuity revenue and tail account rationalisation is already reflecting in the revenue and client mix," said brokerage firm Motilal Oswal Financial Services.

Motilal also highlighted that the company’s competitive advantages in doing business remain robust and intact which include strong reference ability in SAP HANA and salesforce ecosystems, deep domain expertise in niche verticals and long-standing partnerships with global tech majors such as Microsoft and SAP.

"With normalcy coming back and a new strategy in place, Mindtree appears set to surprise on revenue growth too. While deal closures in December 2019 were soft, we foresee strong deal win momentum in March 2020 and ahead. This should be led by L&T’s core philosophy of a strong focus on mining top accounts and recently constituted strategic deal team targeting large deals," said Motilal Oswal.

Motilal Oswal has upgraded the stock to buy with a target price of Rs 1,100.

The company's Q3 net profit jumped 45.9 percent to Rs 197 crore for the quarter ended December 2019 (Q3FY20) against Rs 135 crore in the previous quarter.

The revenue of the company rose 2.7 percent to Rs 1,965.3 crore versus Rs 1,914.3 crore, however, dollar revenue was down 7.2 percent at $251.5 million versus $271 million, QoQ.

Earnings before interest, tax (EBIT) was up 33.2 percent at Rs 236.4 crore versus Rs 177.5 crore, while EBIT margin was up 270 bps at 12 percent versus 9.3 percent, QoQ.

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Nishant Kumar
first published: Feb 25, 2020 12:30 pm