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Shares of Mindtree slumped nearly 4 per cent on Thursday despite the company coming out with a strong set of numbers. Most brokerages expect the company to show consistent growth going ahead and maintain their Buy stance. But for some, despite strong Q1 performance, the current valuation of Mindtree is stretchy.
The stock, after hitting a low of ₹2,790, closed at ₹2,785.65 on the BSE, down 3.93 per cent over the previous day’s close. The stock’s 52-week low and high figures are ₹2,564.95 and ₹5,059.15, respectively.
On Wednesday, the firm reported revenues of ₹3,121.1 crore for the June quarter, a growth of 7.7 per cent sequentially. This is the firm’s sixth consecutive quarter of more than 5 per cent revenue growth in constant currency terms. On a year-on-year basis, a 36.2-per cent increase was recorded. However, the net profit for the period stood at ₹4,71.6 crore, a sequential decline of 0.3 per cent, but a growth of 37.3 per cent year on year.
Valuation concern
Despite a strong correction from its peak and consistence topline growth, some analysts said the valuation is still higher.
According to Motilal Oswal Financial, “We maintain our Neutral rating on MTCL due to its fair valuations (20x FY24E P/E), and softness in retail and constraints on management bandwidth due to its impending merger with L&T Infotech (LTI).”
The stock is currently trading at 20x FY24E EPS. "As the key positives are already captured, we see limited upside hereafter," it added.
Brokerages’ Buy call
However, for others, the stock is Buy for the medium term.
"We maintain Buy with a TP of ₹3,400 at 25x June 2024 EPS, considering strong execution, margin defence and benefits from merger synergies with LTI in the medium term," said Emkay Global.
According to YES Securities, robust deal booking for the quarter (all-time high) provides strong revenue visibility. Improving employing pyramid, positive operating leverage and the efficiency measures should help broadly maintain 20 per cent plus EBITDA margin going ahead, it added.
HDFC Securities, which retained its Buy rating with a revised price target of ₹3,830 (₹3,860 earlier), said, “We expect MTCL to deliver a high-teens growth CAGR in FY22-24, supported by expansion into Continental Europe and core portfolio focus (cross-sell), with predictable margins (management maintained 20 per cent + EBITDAM outlook).”
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