MindTree Ltd. share price target

Strategy change in terms of higher focus on managed services/annuity revenue should translate into longer-term engagements and better quality earnings. Among the mid-cap IT companies, MTCL was an early mover in terms of the strategic focus on digital capabilities, which also led to a high share of digital in the revenue mix (50%+). This led to high volatility in growth and margin trajectory, Strategic change in terms of higher emphasis on managed services should lead to longer-term engagements, lower volatility and higher quality earnings. These steps translated into a high share of digital revenue (50%+) The companys strong reference ability in SAP HANA/salesforce ecosystems and niche verticals like Hi-Tech, CPG, Travel & Hospitality provide it an edge over competitors. The volatile nature of spend in this account also led to relatively high volatility in MTCLs revenue growth and margin trajectory (v/s peers like LTI).

We reiterate our REDUCE rating on the stock with a revised target price of Rs. 817 based on 14x FY22E adj. EPS, given the sluggish growth in contracts signed and tough competition in the industry. Strong Hi-Tech segment leads the way Mindtree's revenue were up 10.0% YoY to Rs. 1,965cr primarily driven by the 15.7% YoY growth in the High Technology and Media segment (41.5% of total revenue), Also, Travel and Hospitality segment (16.6% of total revenue) and BFSI segment (21.3% of total revenue) grew 9.9% and 8.2% YoY, respectively. Retail, CPG and Manufacturing...

Sector: IT /Mid-Cap | Earnings Update 3QFY20 Background: Mindtree is a mid-cap IT company with revenues of INR 70.2bn (FY19). In 3QFY20: Revenue share by Geography mix: North America (74.6%), Europe (17.0%), India (4.0%) and ROW (4.4%). Revenue share by service mix: ADM & product engineering (12.7%), IMS (24.9%), Testing (17.7%), Packaging solutions (6.5%) and Digital (38.2%). Revenue share by Vertical mix: BFSI (21.3%), Retail CPG & Manufacturing (20.6%), Travel & Hospitality (16.6%), Hi-tech Media & Entertainment (41.5%).The company has 21,561 employees spread across 27 offices to cater to 320 active clients, which includes over 40 Fortune 500 companies. Top client revenue...

The company reported 1.5% QoQ growth in dollar revenues driven by its top client. However, revenues were below our estimates while growth in 610 clients continued to decline in the quarter. The key positive in the quarter was margin expansion of 262 bps mainly led by operational efficiency and currency benefit. Key concern in the quarter was low digital growth at 13.5% YoY, dip in TCV (down 19.1% YoY & 32.6% QoQ) leading to book to bill ratio...

While Mindtree has navigated the leadership transition, broad-based' and sustainable growth profile may take slightly longer as the company undergoes the shift from project-heavy (front-end digital) into longer duration annuity deals. Near term performance will exhibit modest revenue growth (vs. peers) and improving operating profile. We expect USD rev/EPS at 10/13% CAGR over FY19-22E factoring USD rev growth of 8.9/10.3/11.5% and EBIT% of 10.0/12.1/13.7% for FY20/21/22E. We maintain NEUTRAL on Mindtree following an in-line rev/better operating performance. Growth was top account heavy and operational improvement is expected to continue. Our TP of Rs 830, implies 14x Dec-21E EPS (~4% increase in EPS est).

Mindtree's (MTCL) Q3FY20 operating performance was buoyed by operating margin beat as revenue fell short on expectations.

Mindtree Limited's revenue grew by 9.1% YoY (11.1% YoY in constant currency) driven primarily by HiTech and Media segment (39.8% of revenue) which grew 10.4% YoY supported by 11.1% YoY growth in Travel and Hospitality segment (17.0% of revenue) while BFSI (21.6% of revenue) and Retail, CPG and Manufacturing segments (21.7% of revenue) were up 5.4% and 8.7% respectively. Geographically, US (73.7% of revenue) witnessed significant improvement of 9.3% YoY while Europe (17.6% of revenue) saw limited YoY growth of 2.8%. The revenue growth was driven primarily by Digital business which was up 18.8% YoY and maintained its contribution to total...

Mindtree's growth trajectory has lowered following the management/promoter transition and significant deceleration in top account (a key growth driver). While Mindtree's inherent business strengths of strong digital practice (front-end), marquee accounts and exposure to high growth verticals are in place, leadership transition, modest growth in digital and large account volatility are near term risks. We expect USD rev/EPS at 10/11% CAGR over FY19-22E and at CMP Mindtree trades at 15.5x FY21E EPS. We maintain NEUTRAL on Mindtree following an in-line 2QFY20. Recovery in BFSI and operating trajectory is offset by volatility in large accounts/attrition spike. Our TP of Rs 760 implies 14x Sep-21E EPS.

After a weak quarter performance in Q1FY20, Mindtree reported a good Q2FY20 with beat on revenues and in-line margins. Revenues in constant currency grew by 3.2% QoQ and 11.1% YoY while adjusted EBITDA margins expanded 40 bps QoQ to 13%. Growth in revenues was broad based among verticals across geographies. In terms of digital revenues, it increased 2.6% QoQ & 18.7% YoY and comprised 38% of revenues while digital TCV was up 2.2% QoQ. Pointers which were key draggers in this quarter were 1) Dip in total TCV by 5.2% QoQ 2) Increase in attrition to 16.5% (vs. 13% in...

Mindtree reported inline quarter on revenue & margin front. Attrition Change in Estimates | Target | Reco increased sharply & is not a surprise. Positives were stable TCV momentum inspite of management transition & broad-based growth amongst verticals....