Hold MindTree; target of Rs 945: ICICI Direct

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ICICI Direct's research report on MindTree

The company reported 1.5% QoQ growth in dollar revenues driven by its top client. However, revenues were below our estimates while growth in 6-10 clients continued to decline in the quarter. The key positive in the quarter was margin expansion of 262 bps mainly led by operational efficiency and currency benefit. Key concern in the quarter was low digital growth at 13.5% YoY, dip in TCV (down 19.1% YoY & 32.6% QoQ) leading to book to bill ratio of 0.76x and increase in attrition to 17.2% (vs. 13.4% in Q3FY19).

Outlook

Further, the company has changed the forex hedging strategy to a three year period, which will provide better PAT margin visibility. Based on these factors, we revise our EPS and multiple upwards leading to a revised target price of Rs 945/share. However, the recent run up in the stock prompts us to maintain HOLD rating on the stock. Key things to watch out in coming quarters are: 1) attrition, 2) deal TCV and 3) digital revenue growth.

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