Mindtree’s Q2 numbers evoke mixed reaction from analysts

Our Bureau Chennai | Updated on October 17, 2019 Published on October 17, 2019

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Shares of Mindtree slipped to a low of ₹720 in early trade on Thursday on the BSE after the company’s Q2 performance evoked mixed reactions from analysts. The stock managed to recover partly to close at ₹729.35.

Motilal Oswal, in a research report, said: “Considering the profit miss in Q2 and management’s commentary about the gradual margin improvement, we cut our EBIT margin estimate by 120 bps/30 bps for FY20/21. Our revised target price of ₹750 discounts forward earnings by 15x (v/s 16x earlier) amid concerns about profitability and leadership transition.”

Mindtree on Wednesday reported a 34.6 per cent y-o-y decline in consolidated net profit to ₹135 crore for the September quarter, and said it sees a strong deal pipeline in the second half of the current fiscal. It saw its revenue grow 9.1 per cent to ₹1,914.3 crore (₹1,755.4 crore).

“Mindtree appears to have managed the impact of the recent acrimonious ownership/management change well, at least so far, with revenue growth and margins in Q2 broadly in-line with estimates. Stability in the top client (21 per cent of revenues; +12 per cent y-o-y) and healthy order book addition (13 per cent y-o-y) are assuring,” Pankaj Kapoor, analyst with JM Financial, said in a note. The research house is maintaining its ‘Hold’ rating on the stock with a price target of ₹760.

Reliance Securities maintained its ‘Hold’ rating on the stock, though it revised the price target to ₹760 from the earlier ₹740.

After a poor start to the year, Mindtree has made a decent recovery on both revenue and margin fronts in Q2. A ramp-up in large deals along with improved operating efficiency will drive the second half performance in FY20. Top clients saw robust growth in Q2, and the company believes there is good scope for further engagement. “All-round growth along with decent y-o-y TCV (total contracts value) growth set Mindtree up nicely for the remaining period of FY20. However, current valuation, that too amid challenging macro environment, is not quite supportive for us to change our stance on the stock,” Reliance Securities added.

However, Emkay Global is retaining its ‘Sell’ call on the stock with a price target of ₹680.

Published on October 17, 2019
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