Mindtree shares plunge despite strong Q1 show. What brokerages recommend?
Premium- Mindtree reported strong Q1 results on all-round performance, beating expectations
IT company Mindtree on Wednesday posted a 37% rise in net profit at ₹471.6 crore for the three months ended on June 30, 2022, driven by improved operational efficiencies, increased utilization and revenue growth, as compared to ₹343 crore in the same quarter last year. Shares of Mindtree plunged more than 3% to ₹2,812 apiece on the BSE in Thursday's opening deals.
Mindtree's revenue from operations surged to ₹3,121 crore in Q1FY23 as compared to ₹2,291.7 crore in the corresponding period of the last year, posting year-on-year (YoY) growth of 36%.
“Mindtree's 1Q results beat our estimates led by strong margin delivery on the back of lower employee costs. Deal wins at US$570m were at an all-time high and management reiterated strong demand for 1HFY23. However, RCM vertical remained subdued with signs of slowdown in spends," said analysts at Jefferies in a note.
While they have raise their estimates by up to 5%, the brokerage house remains wary of Mindtree's exposure to short-cycle deals, high client concentration and merger-related risks. It has maintained underperform rating on Mindtree shares with a target price of ₹2,490.
Mindtree’s dollar revenue stood at $399.3 million, up 5.5% sequentially in constant currency, making it the sixth consecutive quarter of 5%-plus revenue growth in constant currency. The total contract value of deals stood at an all-time high of $570 million.
“Mindtree reported another set of strong results. It was driven by its strong BFSI and travel segments – perfectly in-line with our hypotheses of recovery in travel segment. Top client continued to report strong growth, while retail vertical was impacted by client specific issues," said PhillipCapital.
The Bengaluru-based IT service provider's margins at 19.2%, sprang a big positive surprise is a remarkable feat in this environment with supply side challenges. Mindtree margins have surprised investors across the board – something that the brokerage said has been advocating for over two years. PhillipCapital has maintained Buy on the IT stock with a target price of ₹4,300.
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