Dolat Capital Market is bearish on Mindtree has recommended sell rating on the stock with a target price of Rs 1190 in its research report dated October 15, 2020.
Dolat Capital Market's research report on Mindtree
Mindtree reported 3.1% QoQ growth in $ revenues (CC growth of 2.1% - inline) despite marginal decline in top client. Growth was broad-based across vertical (except Tech). Surprisingly OPM improved by 160bps QoQ to 16.7% (DE 15.4%) led by efficiencies from offshore shift and sustained deep Cost optimization (SG&A down 30% in 2 quarters). TCV for Q2 stood at $303Mn (down both on QoQ/YoY) taking the count up by 14% YoY on TTM basis (also discontinued new/renew metrics). Commentary remained encouraging across but not evident in metrics.
More importantly soft performance from top clients, sustained weakness in travel verticals and flat TCV is not encouraging either. Sustenance of profitability at these levels is quite unlikely as well. Taking into account, modest TCV, volatility in Top client and unsustainable OPM gains, we see current valuations unwarranted and thus maintain our Sell rating on the stock with TP of Rs 1,190 valued at 17x FY23E earnings (implies 1.5x on PEG basis).
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