Prabhudas Lilladher recommended Reduce rating on Mindtree with a target price of Rs 888 in its research report dated July 15, 2020.
Prabhudas Lilladher's research report on Mindtree
Mindtree reported revenue de-growth of 9.1% in QoQ vs our estimates of 7.1% CC decline. Volumes were up 4% YoY. Pricing was down 5.2% YoY, mainly driven by lower revenue from travel and hospitality segment. Travel & Hospitality reported 55% QoQ decline followed by 7% QoQ decline in Manufacturing & Retail & 9.5% QoQ decline in BFSI. Management mentioned that uncertainty will continue in TTH in next quarter also but overall revenue decline will be much lower as it was in present quarter. The top client growth was excellent and grew at 10.5% QoQ and 43.7% YoY to US$76 mn but, this has resulted in significant increase in top client concentration to 30% of revenues from 24.8% in 4QFY20 and 20.1% in 1QFY20. We maintain our Reduce rating as we consider stock valuations expensive against the downturn of discretionary spends & top client concentration (30% of revenues).
Outlook
Our EPS estimates are upgraded on account on better margin performance, change in deprecation policy & higher other income. We value MTCL at 14X Sep-22 EPS of Rs. 63.5 to arrive at changed TP of Rs.888. MTCL is trading at 16X/15X FY22/23E earnings of Rs.61/66 respectively.
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