Buy Mindtree Stocks For High Returns? Healthy Revenue Growth Beating Expectation: Emkay Global

Brokerage firm Emkay Global suggests buying the stocks of Mindtree. The company's top client grew by 8.6% QoQ, and management reiterated confidence in sustaining growth in the top account while widening the growth base.

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of Mindtree is Rs. 2,901. Emkay Global has estimated a Target Price for the stock at Rs. 3,400. This stock has the potential to give a 17.20% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 45,890 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 2,901
Target Price	Rs. 3,400
Potential 1 year return	17.20%
52 week high share price	Rs. 5,060.00
52 week low share price	Rs. 2,552.05

Mindtree delivered in-line revenue in Q1FY23, while margins beat estimates. Revenue grew 4.0% QoQ (CC 5.5%) to US$ 399.3mn, on the back of healthy demand for digital services, steady progress on client mining, deepening partnerships with cloud hyperscalers, and a steady ramp-up of past deal wins. EBITDA Margin expanded marginally by 10bps QoQ to 21.1%, exceeding our estimate by 70bps.

Stock advantages and risks: Emkay Global

On the stock, Emkay Global commented, "Deal wins remained solid in Q1 with a record TCV of USD570mn. EBITDA Margin expanded by 10bps QoQ to 21.1% on the back of operational efficiencies (+50bps) and forex benefits (+70bps), partly negated by visa costs (-50bps) and one-time merger-related expenses (-60bps). Mindtree is confident of sustaining 20%+ EBITDA Margin in FY23 on the back of sustained revenue growth momentum, right pricing, flattening employee pyramid and optimization of subcontracting expenses negating headwinds emanating from wage hikes (w.e.f. July), rising costs of talent, investments in front-end sales, and identified white space opportunities.

"We tweaked FY23E/FY24E/FY25E EPS by -0.1%/0.3%/0.4%, factoring Q1 performance. We maintain Buy considering strong execution, margin defense and benefits from merger synergies with LTI in the medium term. Strong revenue growth momentum (6th consecutive quarter of over 5% CC QoQ growth), record-high deal intake, margin beat amid supply-side challenges," the firm added.

Company profile:

The company helps the world's leading companies use cutting-edge digital and cloud solutions for competitive differentiation. Management indicated that the deal intake remains well-balanced across annuity and transformational deals, and the deal pipeline is healthy, giving confidence in growth sustainability. 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 behavior. They are expanding relationships with other strategic accounts and reducing the dependency on the top client.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.