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IT firm Mindtree Ltd's EBITDA margin recovery may continue in Q4 and FY 2019 post hitting a bottom in Q1, led by revenue growth and operational cost cuts, HSBC Global Research said in a note. Mindtree's EBITDA margin to rise to 16.5 per cent in FY19, led by operational cost improvements in the core business and further improvement in the subsidiaries such as Bluefin and Magnet, the note said.
With the recent pick-up in revenue growth momentum and better visibility on margins, HSBC has raised Mindtree's forward PE multiple to 18x, in-line with larger peers Infosys Ltd and Tata Consultancy Services Ltd. Mindtree's 12-month forward PE ratio is 28.61x, Infosys has 16.39x and TCS has 22.98x, according to Thomson Reuters Eikon data.
Assuming revenue from large clients will now be stable, the recent total contract value signing do support 13-14 per cent growth in FY19, HSBC has said.
Delay in deal ramp-up and weak macro environment remain downside risks for Mindtree, the note cautioned.
HSBC has raised target price on the stock to Rs 730 from Rs 500. It has retained “hold” rating with downside of 11.6 per cent as the stock is trading at a significant premium to its peers.
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