Mindtree - 1QFY22 - Results Reviews Report - Stronger, faster - HDFC Securities

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

We maintain ADD on Mindtree (MTCL), following revenue outperformance in Q1, all-time high bookings and hiring reflecting strong demand, and improving revenue profile (broad-based). Mindtree's growth mix has improved in recent times (vs. a skewed profile earlier), led by interventions to drive large/annuity deals. Its sustainable structural improvement is validated by (1) the uptick in Q1 deal TCV at >USD 0.5bn (vs. USD 1.4bn in FY21) and strong growth in large accounts (faster than T1), (2) improved cross-sell and addition of strategic logos (7 in Q1 and 26 in FY21), and (3) recovery in BFSI vertical. Growth is expected to be led by Europe and non-T1 accounts (20% CAGR over FY21-24E vs. ~8% earlier). Synchronously, the near-term margin gets a knock on elevated sub-contracting (linked to deal transition) and wage revision cycle. Our target price is INR 2,635, valued at 28x Jun-23E EPS (15% CAGR over FY21-24E over a high base in FY21 at >70%).

Q1FY22 highlights: (1) MTCL reported revenue at USD 311mn (above our estimate of USD 304mn), 7.7% QoQ in USD terms with T1 growth at 5.4% QoQ and continued strong growth in non-T1 business at +8.6% QoQ. (2) EBITDA margin declined by 166bps QoQ to 20.3%, impacted by increase in sub-contracting and accelerated hiring (towards Q1-end), visa cost, offset by INR depreciation, offshoring, and operating leverage. (3) Growth was broad-based across verticals, led by travel (+12.8% QoQ); retail, CPG and manufacturing (+7.7% QoQ); comms, media & tech (+6.8% QoQ) and BFSI (+6.6% QoQ). (4) Deal TCV clocked the highest ever at USD 504mn, 29% YoY (book to bill at 1.6x compared to 1.5x in Q1FY21). (5) The company saw the highest-ever net headcount addition.

Outlook: We have factored in USD revenue growth of +23.2/+15.1/+14.2% and EBITDA at 19.1/19.8/20% for FY22/23/24E respectively. We expect an EPS CAGR of 15% over FY21-24E and RoIC of >40% to support the valuation (27x FY23E).

Shares of MINDTREE LTD. was last trading in BSE at Rs.2702.15 as compared to the previous close of Rs. 2494.75. The total number of shares traded during the day was 310085 in over 18373 trades.

The stock hit an intraday high of Rs. 2728 and intraday low of 2564.95. The net turnover during the day was Rs. 831986030.

Source : Equity Bulls

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