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Centrum Broking
Mindtree (Buy)
Target: ₹1,600
CMP: ₹1,331.20
Mindtree’s Q2-FY21 results were inline on revenues but delivered strong beat on margins and PAT. Mindtree guided for steady growth momentum in H2-FY21 despite seasonal impact of furloughs led by ramp up of recent deal wins.
Mindtree margin commentary was especially strong and company cited that it would sustain current EBIT margin (16.7 per cent as on Q2-FY21) even in Q4-FY21 despite company giving wage hikes effective January 2021. We now model Mindtree USD revenue growth/(decline) at (2.7)/13 per cent for FY21/FY22 (vs (2.4)/13.2 per cent earlier).
Post Q2 strong margin execution, we now model Mindtree EBIT margin at 16.3/16.9 per cent for FY21/FY22 (vs 14.7/15.1 per cent earlier). Led by Q2-FY21 strong margin beat and ramp up of new deal wins leads us to raise EPS estimates by 11/11/9 per cent for FY21/FY22/FY23.
With limited options in diversified portfolio midcap IT Services companies (LT Infotech, Mindtree, Coforge) coupled with low float in these stocks, there is steeper movement in these stocks. Mindtree trades at 20.7x FY22 EPS and 19x Sept 22 EPS. (LT Infotech is trading at 27x Sept 22 EPS). Retain Buy with target price raised by 13 per cent to ₹1,600.
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