Prabhudas Lilladher is bullish on Mindtree has recommended buy rating on the stock with a target price of Rs 4804 in its research report October 14, 2021.
October 14, 2021 / 02:07 PM IST
HDFC Securities research report’s outlook and valuations: “The YTD EPS upgrades (consensus) have been led by mid-tiers such as Tata Elxis, Mindtree, Mastek, and Persistent Systems, ranging from 20-40 percent and, within tier 1, by Wipro (~15%). We expect the sector (coverage universe) to post 13 percent and 14.5 percent USD revenue/APAT CAGR over FY21-24E compared to 6.5/7.5 percent over the past five years. The mid-tier valuation premium relative to tier 1s may sustain, based on its relative outperformance (>500bps growth outperformance over FY21-24E as compared to 250bps earlier). We roll over valuations to Sepemtember-23E and increase target multiples for most of the companies in our coverage universe. We remain broadly constructive across the sector and ahead of consensus on growth/EPS; our preferred picks are Infosys, HCLT, Mphasis and Zensar.”
Prabhudas Lilladher’s research report on Mindtree
MTCL reported exceptionally strong beat in revenue (+450bps/+680bps above our/cons estimates) with 12.7% QoQ USD growth led by strong growth in RCM (+29.7% QoQ USD) partly aided by project backlogs as economies opened after extended lock down, especially in Europe region which also posted strong growth. (Continental Europe +14.7% QoQ USD). Rest of the verticals and markets also posted strong growth. Bulk of the growth was driven by Customer Success service line (+21.9% QoQ USD) which also indicates strong demand for adoption of technology for revenue maximization and this is only expected to increase with time. Deal TCV of $360 Mn grew 19% YoY but was bit soft compared to record high TCV of $504 Mn in 1Q22. Management mentioned that deal pipeline is strong with good mix of multi-year annuity and short-term digital transformation deals.
We expect massive upgrades in consensus EPS estimates. We arrive at DCF based TP of INR 4804 (earlier: 4,593). MTCL is currently trading at 39/33.6X on earnings of INR 111.7/130.1 for FY22/23 respectively with Revenue/EPS CAGR of 21%/25% for FY21-24E.
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