Apurva Prasad, Institutional Research Analyst, HDFC Securities and Amit Chandra, Institutional Research Analyst, HDFC Securities.
Mindtree (MTCL IN) delivered in-line revenue while margin was better than our estimate in Q1, supported by flat sub-contracting. The sequential growth of 5.5% CC followed the sixth consecutive quarter of 5%+ sequential growth, supported by broad-based momentum across service lines. Key positives include (1) consistency in delivering industry-leading growth > 5% QoQ CC, (2) strong credentials in hi-tech and travel vertical (airlines and hospitality exceeding pre-COVID levels), (3) healthy TCV bookings with TCV growth of 13% YoY, (4) focus on building full stack services and client rationalisation (focus on 100 accounts that contribute 90% of the total revenue), and (5) stable sub-contracting expenses (9.6% of the revenue in Q1 vs 10.2% in FY22). We expect MTCL to deliver a high-teens growth CAGR in FY22-24E, supported by expansion into Continental Europe and core portfolio focus (cross-sell), with predictable margins (management maintained 20%+ EBITDAM outlook). Maintain BUY with a TP of INR 3,830, valuing MTCL at 28x FY24E EPS.
Q1FY23 highlights: (1) MTCL reported a sixth consecutive quarter of revenue growth of > 5% QoQ CC at USD 399mn (in line with our estimate of USD 400mn), +4% QoQ in USD terms (+5.5% QoQ CC), led by healthy growth in a top account (+8.6% QoQ). (2) EBITDAM improved by 10bps QoQ to 21.1%, supported by operational efficiency (+50bps) and FX tailwind (+70bps); partially offset by visa cost (-50bps) and one-time M&A cost (-60bps). (3) Among the verticals, growth was led by travel (+11.3% QoQ; airline & hospitality exceeding pre-COVID level), BFSI (+6.6% QoQ); and communications, media & tech (+5.9% QoQ). However, retail, CPG and manufacturing declined -8.8% QoQ, impacted by ramp-down in a retail client. (4) Deal TCV in Q1FY23 was at a record high of USD 570mn, 13.1% YoY. (5) MTCL had a net headcount addition of 3,284 in Q1 (1,500 fresher intakes) and it intends to continue >1,500 quarterly fresher additions in FY23E.
Outlook: We have factored in USD revenue growth of +19.9/+16.4% and EBITDAM at 20.2/19.8% for FY23/24E. We expect an EPS CAGR of 17% over FY22-24E.
Shares of MindTree Limited was last trading in BSE at Rs. 2785.55 as compared to the previous close of Rs. 2899.35. The total number of shares traded during the day was 95975 in over 8976 trades.
The stock hit an intraday high of Rs. 2968.00 and intraday low of 2761.00. The net turnover during the day was Rs. 270396874.00.