Here’s Why MindTree Stock Can Generate Decent Returns

The stock of MindTree can generate decent profits in the coming days, and can return 7 per cent, according to brokerage firm Axis Securities.

"Mindtree reported much broad based growth in Q2 FY21, revenue stood at Rs. 1,926 crores up 0.6% year-on-year and 0.9% quarter-on-quarter.

Operating profit showed a growth of 52.5 per cent YoY at Rs. 378 crores, operating margin grew by 170 bps at 16.7 per cent than previous quarter aided by strong execution, lower utilization and lower travel cost. Net profit for Q2 FY21 stood at Rs.253.7 crores reported a growth of 6.4% YoY," Axis Securities has stated.

According to the Brokerage firm, the management commentary is positive in the verticals like BFSI, Hi Tech Media and Life Sciences.

"However management is positive on the H2 FY21 outlook despite seasonal weakness. Deal wins for the quarter remained below than expectations at $307mn. Mindtree management also guided for investment, timely strategy refresh led by consolidation of service lines, attention towards multi-year engagements and focus on scaling top accounts can aid sales traction. We believe Mindtree has a resilient business structure from a long term perspective and strong execution strategy.

We recommend HOLD and assign 21x P/E multiple to its FY23E earnings of Rs. 74 per share which gives a target price of of Rs. 1,530 per share, an upside of 7%," Axis Securities has stated.

Key Investment Arguments

According to the brokerage firm the key investment arguments in favour of the investment includes the following:

1) Mindtree management continues to focus on improving operational efficiencies which has led to margin expansion (+740 bps YoY). Company is extending wage increments to its employees effective January 2020. Despite increments, management expects stable margin led by operational improvements and revenue growth.

2) Mindtree's service mix within the client is well diversified and management's engagement continues to be strong. Completion of renewal cycle in Q1 showcases importance of the collaboration. Management is confident of continuing growth with the top client.

The shares of MindTree was last seen trading at Rs 1,335, up 0.50 per cent.