Value Pick: Consistency in dollar revenue growth makes brokerages bullish on Mindtree shares; up to 31% upside seen

Mid-cap IT firm Mindtree Limited reported over 5 per cent sequential revenue growth in constant currency terms for the fifth consecutive quarter in Q4FY22. This majorly gives confidence to several brokerages making them bullish on the stock. They see up to 31 per cent upside in share price. 

Besides, registering an impressive profit during the March quarter, the management’s positive commentary on the verticals such as BFSI, Hi-tech Media, and Life Sciences along with robust deal-wins for the quarter are among the many triggers for the company, brokerages believe. 

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The stock on Wednesday closed over 1 per cent higher to Rs 3683 per share on the BSE as compared to over 1 per cent rise in the S&P BSE Sensex. 

Axis Securities 

We believe Mindtree enjoys a resilient business structure and has a proven track record of strong and efficient execution capabilities. With the depreciation in the rupee, lower travel cost, and lower on-site expenses, EBITDA margins are likely to expand in the near term.  

The company continues with its multi-pronged strategy of consolidating service lines, consistent investment, focusing on garnering multi-year engagements, and scaling up top accounts that would aid in sales traction moving forward. 

We recommend a BUY on the stock and assign a 35x P/E multiple to its FY24E earnings of Rs 135.8 per share to arrive at a target of Rs 4,830 a share, implying an upside of 31 per cent. 

Motilal Oswal 

We view continued execution in both revenue growth and profitability as a key positive for the stock. We expect revenue to remain robust and margin to remain stable. We expect it to deliver 20 per cent CAGR (Compound Annual Growth Rate) in dollar revenue over FY22-24. 

The management’s increased focus on annuity revenue and strategic accounts is reflected in its revenue and client mix. A strong outlook on strategic accounts, decent deal signings, and the ability to sustain improved margins are key positives.  

The stock is currently trading at 28x FY24E EPS. Motilal Oswal maintained Neutral rating however sees an upside of almost 15 per cent in the stock at the target price of Rs 4,230 per share, impling 30x FY24E EPS. 

ICICI Securities 

We forecast Mindtree to post strong revenue growth of around 22%/16% with EBITDA margin of 20%/20.2% for FY23/24E. Margin estimates have an upside risk. In our view, Mindtree may continue to deliver industry-leading growth along with a strong operating performance in FY23E as well.  

We are impressed by the company’s consistency and disciplined execution on profitability, and believe it is moving from discrete initiatives to transformation at scale which increases cross-selling opportunities with clients.  

ICICI Securities value the stock at 32x on FY24E EPS of Rs130 to arrive at a target price of Rs 4,167, which implies over 13 per cent potential growth in share price, as the strong revenue growth trajectory continues.