Prabhudas Lilladher's research report on Mindtree
MTCL reported revenue growth of 2.2% QoQ CC & 3.2% QoQ $ slight (-0.8%) below ours/street estimates. Softness in revenue was account of top account declining by 1% QoQ after 12% CQGR for last 4 quarters. We believe there was normalization of revenues from Azure on account of strong spike in demand in pandemic times, along with seasonality. However, management is confident of maintaining growth traction in top account. We were already expecting a strong operating margin performance of 16% vs cons estimates of 13% but it exceeded even our expectations to arrive at 17.3%(+357bps QoQ,804bps YoY) in Q2FY21. The main highlight was management commentary & confidence of maintaining the margins at this levels going forward. We would like to highlight that offshoring effort has increased by 190bps which is at the highest levels since last 6 years. As complete focus is towards annuity based deals, shift to offshoring will be best strategy. We have trimmed our revenue growth estimates by avg 1.1% for FY22/23 on account soft deal wins, but strong margin performance led to EPS upgrades of 8%/0.6% for FY22/23E. We maintain our BUY rating on MTCL as we believe that 1) Execution & focus on annuity deals is bringing back stability in revenue & margin performance, 2) 40% exposure to fastest growing hi-tech space & worst for TTH (Travel & Hospitality) is behind.
We continue to value MTCL on 21X multiple for Sep-22 earnings of INR 77.4 to arrive at a changed TP of INR 1625 (earlier:1560). MTCL is currently trading at 18.3/16.4X earnings of INR 73.3/ 81.5 for FY22/23 respectively with EPS CAGR of 16% for FY21-23E.
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