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Reliance Securities
Mindtree (Buy)
CMP: ₹867.4
Target: ₹1,050
Mindtree’s key verticals including CPG (consumer packaged goods) & Retail, Travel and Hi-tech are witnessing good traction, while BFSI remains currently subdued owing to lower digital proportion. Digital traction remains strong and deal sizes are on the rise. This clearly indicates clients’ commitment towards digital transformation initiatives, which we expect will drive growth, going forward. From volume and pricing perspective, while blended volume declined by 1.1 per cent q-o-q, pricing saw 3.2 per cent q-o-q improvement.
Mindtree added a gross of >1,200 employees in 3QFY19, while on net basis, it added 506 people, taking total headcount to 19,908 as of December-end. Employee utilisation remained almost flat, both cum-trainees (74.6 per cent versus 74.5 per cent in 2QFY19) and ex-trainees (76.4 per cent versus 76.5 per cent in 2QFY19).
Outlook & valuation: Good business momentum and healthy traction in key verticals are positive takeaways from Mindtree’s 3QFY19 earnings report, which drive our underlying confidence on growth through FY19E and FY20E. The mid-sized IT firm should report better revenue growth in 4QFY19E. We expect Mindtree’s dollar revenue to clock 15.6 per cent CAGR over FY18-FY20E, one of the highest in the industry. Trimming down our EPS estimates by 2 per cent for FY20E on lower other income, we maintain our ‘buy’ recommendation on the stock with a revised TP of ₹1,050 (from ₹1,080 earlier).
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