Emkay Global Financial is bearish on Mindtree has recommended sell rating on the stock with a target price of Rs 740 in its research report dated June 14, 2020.
Emkay Global Financial's report on Mindtree
MTCL last week said that it expects a high single-digit revenue decline in the June'20 quarter, albeit expects to hold margins at the Mar'20 quarter levels, aided by cost control measures. MTCL keeps outlook unchanged and expects sequential increase in the Sep'20 quarter and growth recovery in H2FY21. We had been perplexed with the general outlook of mid-single digit fall in the June'20 quarter by Indian offshore techs as compared to a much sharper declines indicated by US-listed peers. We see potential downside risks to near-term growth for Indian techs. MTCL improved EBIT margins in H2FY20 under the new leadership, aided by cost rationalization. We continue to believe that Indian techs in general have lot of flexibility around margins, given that manpower expenses account for 60-65% of revenues.
Outlook
We cut revenue growth estimates and incorporate hedging losses into our EPS estimates (hedging losses of Rs2.1bn on B/s as of FY20 end), which may limit EPS changes despite raising EBIT margin assumptions. Maintain Sell, with a revised TP of Rs740, based on 13x June'22E EPS.
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