Mindtree’s share price soared 9.3% on Wednesday to trade at Rs 2,728 per share as investors reacted to the more than 61.2% on-year jump in net profit of the IT company. While the stock price rose higher, analysts were mixed on the outlook as some advised selling the stock citing unsustainable margins, other asked investors to buy more shares banking on the accelerated digital adoption globally. Mindtree’s share price has soared 62% so far this year, in addition to the 136% rally in the stock between April and December last year.
The IT firm reported a net profit of Rs 343 crore in the April-June quarter, up 61.2% from last year’s Rs 213 crore. The company said it is witnessing broad-based growth across industries and services and that its deal pipeline continues to remain strong. Revenue grew 20% to Rs 2,291 crore from the year-ago period.
Kotak Securities – Sell
Fair value: Rs 1,900
The brokerage firm said that Mindtree’s Growth was led by a jump in short cycle programs and path towards normalization of spending in impacted travel vertical. Kotak Securities has raised EPS estimates by 5-6% and Fair Value to Rs 1,900 valuing the company at 20X June 2023E EPS. However, analysts are cautious about the “ unsustainable EBIT margin profile and rich valuations”. “EBITDA margin guidance of 20%+ seems unsustainable noting cost headwinds, likely decline in utilization rates and increase in travel and other discretionary costs,” they said.
ICICI Securities – Hold
Target price: Rs 2,375
Analysts at ICICI Securities said that revenue growth in the April-June quarter was largely in line with their estimates, but the quality of growth was weaker than usual. The brokerage firm said that the investor’s focus will likely shift to steady-state growth/margins in FY23 and ahead. Moderation in cloud activity, rise in the share of onsite effort and reversal of covid-led cost savings (e.g. travel) are the key headwinds to watch out for. “At 28x FY23E EPS, street is already factoring in mid-teens revenue growth with 20%+ EBITDA margin over the medium term. Scope for further surprises/upgrades are less likely,” they added.
Motilal Oswal – Neutral
Target price: Rs 2,620
Motilal Oswal sees positives in the quarterly results of Mindtree. “Since July 2019, after the disruption due to the ownership change, Mindtree has taken steps to stabilize its client and employee count,” they said. Although the brokerage firm sees limited upside potential, they believe the stock is fairly valued. “The key positives are already captured, and we see limited upside hereafter. Our TP of INR2,620 per share implies 26x FY23E EPS,” they added.
HDFC Securities – Add
Target price: Rs 2,635
Seeing Mindtree’s strong performance, HDFC Securities said revenue outperformance in Q1, all-time high bookings and hiring reflecting strong demand, and improving revenue profile (broad-based). “Mindtree’s growth mix has improved in recent times (vs. a skewed profile earlier), led by interventions to drive large/annuity deals,” HDFC Securities said. The brokerage firm values Mindtree at 28x Jun-23E EPS.
Eqwires Research Analyst
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