Mindtree gains 6% on healthy Q3 results; here's what brokerages say

MOFSL believes the key positives are already captured, and sees limited upside in the stock hereafter
Shares of Mindtree rose 6 per cent to Rs 1,760 on the BSE in Tuesday's early morning trade after the company reported a healthy 65.7 per cent year on year (YoY) jump in net profit at Rs 326.5 crore for the quarter ended December 2020 (Q3FY21). On quarter on quarter (QoQ) basis, the net profit grew 28.7 per cent. The stock had hit a 52-week high of Rs 1,780 on January 11, 2021.

Mindtree’s revenues during the quarter increased by 5.1 per cent QoQ and 3.1 per cent YoY to Rs 2,034 crore. Sequentially, the company’s revenues were up 5 per cent in dollar terms, while in constant currency terms it was up 4.6 per cent. Ebit (earnings before interest tax) margin expanded by 290 basis points (bps) QoQ and 750 bps YoY to 19.6 per cent.

The management said the third quarter has, by far, been the best performing in recent years backed by broad-based revenue growth of 5 per cent across the verticals and service lines, robust margin expansion of 350bps, and a healthy order book of $312 million.

“We are witnessing strong business momentum across all verticals with a significant demand for cloud, data and analytics capabilities. We continue to capitalize on the evolving market dynamics with solutions that help enterprises navigate the new normal and grow their businesses,” the management said.

Brokerage Motilal Oswal Financial Services (MOFSL) said that since July 2019, post the disruption pertaining to ownership change, Mindtree has been undertaking encouraging steps toward achieving stability in both its client and employee counts. The strategy change to increase focus on annuity revenue and tail account rationalization is already reflected in the revenue and client mixes, it added. 

"A stable outlook for the top account, decent deal signings, the ability to sustain improved, consistent margin expansion and a positive outlook margins are key positives. However, high exposure to Travel, Transport, and Hospitality remains a drag on overall recovery," the brokerage said in a note. 

MOFSL believes the key positives are already captured, and sees limited upside in the stock hereafter.

Meanwhile, analysts at Phillip Capital said Mindtree's Q3 performance beat expectations on all fronts. "Growth was broad based, with the top client as well as non-top clients growing smartly – pacifying concerns of concentrated growth and top client plateauing out," it said in a post earnings report.

Margin expansion was the biggest surprise, with margins coming at 33 quarter high – on the back of strong gross margin expansion, it added.

The brokerage maintained 'BUY' rating pn the stock with a target price of Rs 2000. "The margin expansion thesis, on which we had upgraded the stock is playing out to perfection. We believe there is enough near term play left in the stock, as we anticipate more EPS upgrades as Mindtree delivers margins ahead of street expectations. All along, we also expect its eventual merger with LTI to provide long term upside," Phillip Capital said in a note.

At 09:34 am, Mindtree was trading 4 per cent higher at Rs 1,721 on the BSE, as compared to 0.80 per cent rise in the S&P BSE Sensex. A combined 2.3 million equity shares have changed hands on the counter on the NSE and BSE, so far.

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