Mindtree At Over 20-Month High As Brokerages Raise Targets Post Earnings

Shares of Mindtree Ltd. jumped to their highest in nearly two years after international research firm Morgan Stanley upgraded its rating on the stock following the software service provider's quarterly earnings.

Mindtree' Chief Executive Officer Rostow Ravanan said that the company is in a sweet spot as customers are making larger bets on digital than in the past.

Key Highlights From The Earnings (Q3, QoQ)

• Revenue up 3 percent at Rs 1,377.8 crore.
• Net profit up 13 percent at Rs 141.5 crore.
• EBIT up 52 percent at Rs 165.5 crore.
• Margin at 12 percent from 8.2 percent.

Commenting on BFSI business, Ravanan believes that the BFSI business is continuing to do well. “There has been a brilliant turnaround in our BFSI business. The only concern is that we see is that both our winds and pipeline indicate that the BFSI is the slower adopter of digital,” Ravanan told BloombergQUint in an interview. Ravanan added that the current markets are sustainable on a short-term basis.

Ravanan said that the company reported positive earnings during the previous quarter, driven by the strong digital growth.

Morgan Stanley upgraded its stock rating to ‘Overweight' from ‘Equalweight' and pegged a price target of Rs 745, implying a potential upside of nearly 9 percent from Thursday's close.

“We believe that Mindtree's previous quarter results demonstrated an improving macro and better execution,” the Morgan Stanley said in its research note. It expects the midcap IT firm's revenue and operating income to grow at a compounded rate of 12.7 percent and 21 percent respectively over the fiscal years through March 2020.

Morgan Stanley also forecasts operating margin to touch 14.9 percent in the next financial year and raised earnings per share estimates by 11 percent, 17 percent and 16 percent for the current and next two financial years, respectively.

Another international broking firm Credit Suisse raised its price target on the Bengaluru-based firm to Rs 740 from Rs 600, as it sees higher EBIT growth driving the stock upwards. The price target suggests a potential upside of 8.2 percent.

Credit Suisse revised Mindtree's earnings estimates by 4-9 percent for the financial years through March 2020.

The stock closed 9.5 percent higher at Rs 684 apiece on the BSE, the highest since April 28, 2016. It is 12 percent above the Bloomberg consensus one-year target price. The scrip has risen 41.3 percent in the last 12 months, compared with a 22.8 percent gain in the Nifty IT index. Trading volume was 8.9 times the 20-day average.