MindTree Ltd. share price target

CEO interaction takeaways: Navigating rough waters

Q1 affected by higher costs; L&T; takes over Mindtree Ltd is an information technology (IT) consulting and implementation company with focus on select verticals, namely BFSI, Retail,...

Mindtree's growth trajectory is expected to lower following a stellar FY19 (year of revenue acceleration and margin expansion), as growth dichotomy between top account and residual business normalises. While Mindtree's inherent business strengths of strong digital, marquee accounts and exposure to high growth verticals are in place, leadership transition and sub-optimal costs are near term risks. We expect USD rev/EPS at 10/10% CAGR over FY19-22E and at CMP Mindtree trades at 15.6x FY21E EPS which bake in reasonable margin uptick in FY21E. We maintain NEUTRAL on Mindtree following a weak 1QFY20. Our TP of Rs 705 implies 14x Jun-21E EPS (vs. 16x earlier), with ~13% cut in est.

Mindtree's (MTCL) Q1FY20 reported EBIT missed estimates by 46% as both revenue and operating margins

View: Muted growth, generous appraisal hollows down the profitability Mindtree reported disastrous quarterly earnings with a muted revenue growth of 1.1% in CC terms and an OPM decline of over 650bps sequentially in Q1FY20. The revenue growth slip was on account of weakerthan-expected ramp-up on deals owing to the uncertainty around the management changes; while profitability took a blow as Mindtree made generous appraisals (announced one-time special rewards to employees as Mindtree celebrated completion of 20 years in operations of about ~ 450mn, on top of regular wage hikes) to its employees....

MindTree Ltd (MindTree) reported a weak Q1FY20 performance. The company reported 0.8% QoQ growth in dollar revenues to $264.2 million vs. our expectation of $265.9 million. Margins declined from 15.0% in Q4FY19 to 10.0% (below our estimate of 14.4%) in Q1FY20 mainly due to one-time special compensation (impacting margins by 260 bps), wage hike (190 bps), visa cost (30 bps) and currency (40 bps) partly offset by 150 bps benefit arising from implementation of IndAS-116. Even adjusting for one-time...

uncertainty driven by the hostile acquisition process which we already saw in contraction of new deal wins. Mindtree also has a higher exposure to discretionary spending which have short durations and requires strong communication with the clients hence making people continuity more important. We believe managing people aspects & cultural integration is critical in any acquisition process. We expect 7.9% & 8.4% USD revenue & EPS CAGR for FY19E-FY21E respectively & value MTCL at 14x Mar-21 earnings to arrive at target price of Rs.755. Stock...

Mindtree's growth trajectory expected to lower following stellar show in FY19 (year of rev acceleration and margin expansion) as growth dichotomy between top account (36% CAGR over FY16-19) and residual biz (8% CAGR) normalises. The risk of high velocity (attrition) and low velocity (client metrics) cannot be ignored in the current scenario. FCF conversion also moderated on higher capex. We expect USD rev/EPS at 12/14% CAGR over FY19-21E, however at ~17x FY21E (vs. 13.5x for midcap IT) upside seems capped. We maintain NEUTRAL on Mindtree following inline 4QFY19. Our TP is Rs 1,040 implying 18x FY21E, with ~2% change in est.

of 4.2% QoQ USD inline with our estimates at USD262mn. MTCL posted CC revenue growth of 3.9% QoQ (Ple:3.2%, Cons:3%). Mindtree posted EBITDA margins better than we expected at 15.2% (PLe:15.5%) erosion of (-61bps...