Wednesday, January 20, 2016

Hold Mindtree CMP: Rs.1,443;Target: Rs.1,608

Mindtree results were ahead of street estimates. Dollar revenue growth of 3.4 per cent q-o-q (excluding acquisitions) was way above its large-cap peers Wipro, Infosys and TCS for this quarter. This was the third consecutive quarter when Mindtree delivered industry leading growth. Bluefin Solutions (BSL) and Relational Solutions (RSI) acquisitions provided additional $11.3 million to the revenue. Healthy organic price realisation growth of 4.6 per cent q-o-q while organic volume declined 1.7 per cent q-o-q.

Consistent order inflow with TCV of $204 million (Q2: $193 million, Q1: $208 million), strong revenue growth despite weakness in two of its top-10 clients and cooling attrition rate [LTM (last twelve months) 6.0 per cent v/s 17.1 per cent in the last quarter] are key positives for the quarter. Strong Q4 guidance and acquisition of Magnet 360 bodes well for the industry leading growth for FY16.

Currently, Mindtree is trading at 17.4xFY17E and 14.6xFY18E earnings. We upgrade our rating from ‘sell’ to ‘hold’ and rollover to FY18E with our revised target price at Rs.1,608 based on 16xFY18E earnings.

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