ADD on Mindtree - Gaining momentum - HDFC Securities

Mr. Apurva Prasad, Institutional Research Analyst, HDFC Securities and Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain ADD on Mindtree, following a strong 4Q (in-line), strong operational efficiency, and broad-based growth momentum. Mindtree's growth trajectory has improved recently with a balanced profile (vs. skewed historically), led by interventions to drive larger/annuity deals and recent wins such as Knauf and Nordex are validation. Although FY21 TCV is higher by ~12%, robust pipeline (at an all-time high) and expectation of strong closures in 1HFY22 will support 16% growth in FY22. The growth acceleration is expected to be led by Europe geography as well as uptick in non-T1 account (17% CAGR over FY21-23E vs. 4% CAGR over FY16-21) even as T1 is expected to grow at 10% CAGR on a high base. Mindtree's sublime performance operationally (relative to peers) in FY21 is largely sustainable and management guided EBITDA margin >20%. Our target price is INR 2,200, valued at 24x Mar-23E EPS (14% CAGR over FY21-23E following >70% growth in FY21).

4QFY21 highlights: (1) Mindtree reported revenue at USD 288mn, 5.1% QoQ in USD terms with T1 growth at 3.3% QoQ and continued strong growth in non-T1 business at +5.9% QoQ. (2) EBITDA margin declined by -119bps QoQ to 21.9%, impacted by wage hike (-240bps QoQ impact) and higher sub-con (-90bps), offset by operating leverage and operational efficiencies (+170bps). (3) Among the verticals, growth was led by Retail, CPG & Mfg (+8.7% QoQ), Comms, Media & Tech (+4.1% QoQ) and recovery in Travel (+16.3% QoQ); however, BFSI (-2% QoQ) remained weak due to deferment of deal closure and portfolio challenges. (4) Deal TCV in 4Q was USD 375mn, 20% QoQ (USD 1.38bn in FY21).

Outlook: Healthy pipeline, deal win progression, recovery in BFSI vertical, Europe geo and non-T1 will support growth ahead. We have factored in USD revenue growth of +16.9/+13.2% and EBITDA at 21.2/20.7% for FY22/23E respectively. We expect EPS CAGR at 14% over FY21-23E, and >40% RoIC would support valuations (25.1/22.6x FY22/23E).

Shares of MINDTREE LTD. was last trading in BSE at Rs.2094.35 as compared to the previous close of Rs. 2067.6. The total number of shares traded during the day was 167098 in over 8584 trades.

The stock hit an intraday high of Rs. 2144.95 and intraday low of 1999.85. The net turnover during the day was Rs. 349777335.

Source : Equity Bulls

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