Reliance Securities is bullish on Mindtree has recommended buy rating on the stock with a target price of Rs 1000 in its research report dated April 19, 2018.
Reliance Securities' research report on Mindtree
Mindtree has posted a healthy performance in 4QFY18. Its revenue grew by an impressive 5.6% QoQ (4.5% in CC terms) to US$226.2mn (exceeding our estimate by 1.4%) led by superb show in key verticals i.e. Travel & Hospitality (+9.9% QoQ), Technology, Media & Services (+9.3% QoQ) and MFG, Retail & CPG (+6.4% QoQ) in USD terms. On the flip side, BFSI revenue declined by 3.4% QoQ, which the Management believes to be a one-off. Aided by impressive revenue growth, favourable currency movement and higher utilisation, its EBITDA margin expanded by 103bps QoQ to an 8-quarter high of 16.1%, Notably, margin growth is followed by 348bps QoQ expansion in the previous quarter, driving confidence on FY19 margin trajectory, with revenue growth being the key lever. Mindtree won its single largest contract from a US airline customer. The company won deals worth US$298mn in 4QFY18 (+42.6% YoY). The Management’s expectation of even growth along with margin expansion in FY19E vs. FY18 led by healthy revenue growth is a major positive, in our view. Good revenue visibility across all verticals, strong deal wins and high digital component drive our confidence further.
Outlook
Upgrading our EPS estimates by 4%/14% for FY19E/FY20E, respectively and applying a target PE multiple of 20x FY20E EPS, we maintain our BUY recommendation on the stock with a revised TP of Rs1,000 (Rs725 earlier).
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