Maintain ‘equalweight’ on Mindtree and raise price target to R1,455 (earlier R1,300 per share). Mindtree continues to generate strong revenue growth ahead of many larger peers in the industry. Despite client-specific issues in FY16, we expect it to register $ revenue growth of 14% (NASSCOM estimate of industry growth of 12-14%) excluding the recent acquisitions.
We believe that with consistent strong revenue growth, margins could improve and drive stronger earnings growth (17% CAGR over F16e-18e). One-year forward P/E multiple of 18x looks sustainable given industry-leading revenue growth, but upside from here appears limited, even in view of our increased estimates.
Mindtree’s organic revenue growth of 8.1% Q-o-Q was one of the strongest rates in the last 16 quarters. Order in take at $193 million remains robust. Ebit margin improved to 15.8% (+146 bps q-o-q, -131 bps q-o-q) versus our 15.6% estimate. Net income of R1.58 billion (+14.5% q-o-q, +15.1% y-o-y) was ahead of our estimate and the Street.
Revenue growth (excluding Bluefin and Relational acquisitions) was ~12% y-o-y in H1F16, and management sounded extremely confident about exceeding the 12%–14% range for FY16e exacquisitions. We expect US Dollar revenue growth of ~14% y-o-y (ex Bluefin and Relational) and ebit margin of 15.5% (-150 bps y-o-y), leading to EPS growth of 15% for FY16e.
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