Mindtree beats estimates in Q1. Should you bet on this beaten-down IT stock?

A robust execution was masked by a volatile macro environment, said Morgan Stanley, which has an equal-weight rating on the stock.

Better than expected results, strong H1 outlook and reiteration of 20 per cent-plus Ebitda margins were key positives, said the foreign brokerage, adding that the volatile macro environment is creating uncertainty about demand prospects. The brokerage has a target of Rs 4,450 on the scrip.

UBS has maintained a ‘sell’ even as it felt Mindtree gave a beat on revenue, margin and strong TCV wins, with a target of Rs 2,700.

On Thursday, the scrip fell 3.29 per cent to Rs 2,804.05 on BSE. The scrip has fallen 42 per cent year-to-date.

The IT major reported a 37.3 per cent year-on-year (YoY) rise in profit after tax (PAT) at Rs 471.60 crore compared with Rs 343.40 crore in the same quarter last year. Revenue for the quarter rose 36.2 per cent YoY to Rs 3,121.10 crore compared with Rs 2,291.70 crore in the corresponding quarter last year. In dollar terms, revenue came in at $399.3 million, up 4 per cent sequentially and 28.6 per cent YoY. Revenue was up 5.5 per cent sequentially in constant currency terms.

Ebit margin for the quarter came in at 19.2 per cent, compared with 18.9 per cent in the March quarter and 17.7 per cent in the June quarter of last year.

YES Securities, which has a target of Rs 3,432 on the stock, said improving employing pyramid, positive operating leverage and efficiency measures should help the IT major broadly maintain a 20 per cent plus Ebitda margin going ahead,

“Attrition remains high but is expected to moderate over the next few months. Client mining strategy of upselling and cross-selling among top clients may serve it well,” it said while valuing the stock at 27 times on FY24 EPS.

noted that management sees no change in overall client behaviour although it had a couple of client-specific issues in the CPG vertical that have impacted performance through both 4QFY22 and 1QFY23.

“The company remains confident of sustaining ‘about 20 per cent’ Ebitda margins and reiterated commitment to add 30 per cent more freshers in FY23. The results slightly drove FY23E EPS, though we moderate growth assumptions for FY24 and FY25 to factor in increasing macro concerns. We also adjust our target multiple for the ‘merged LTI-Mindtree’ entity to 25 times from 27 times earlier in line with historical 10 per cent average discount to

,” it said while suggesting a target of Rs 3,290 on the stock.

ICICIdirect said it is impressed with Mindtree’s consistency and disciplined execution on profitability. It values the stock at 23 times FY24E EPS of Rs 126 to arrive at a target price of Rs 2,969.

Kotak Institutional Equities said deal wins remained solid in Q1 with a record TCV of $570 million. The company is confident of maintaining revenue growth momentum in Q2 and is cautiously optimistic for H2 amid macro uncertainties and difficulty in predicting clients’ spending behaviour, Kotak noted.

“We tweaked EPS estimates, factoring in Q1 performance. We maintain Buy with a TP of Rs 3,400 at 25 times June 24E EPS, considering strong execution, margin defence and benefits from merger synergies with LTI in the medium term,” Kotak said.

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