Shares of Mindtree Ltd. are trading near their record high as analysts raised price targets after the mid-sized software services provider beat estimates in the quarter ended December.
The company's dollar revenue rose 5% over the previous quarter to $274.1 million in the October-December period, according to an exchange filing. Revenue in rupee terms, too, increased by a similar quantum to Rs 2,023 crore—higher than the consensus forecast of Rs 1,994.7 crore.
Net profit rose 29% sequentially to Rs 326.5 crore. Analysts had pegged the bottom line at Rs 269.1 crore. While earnings before interest and tax rose 19% over the preceding three months to Rs 395.5 crore, margin expanded 230 basis points to 19.6%.
The company won deals worth $312 million during the reported quarter, taking its total deal wins in the nine months of FY21 past $1 billion.
Analysts were positively surprised by the company's margin performance, and raised earnings estimates for at least the next two financial years, citing revenue acceleration, higher off-shoring and better utilisation.
Shares of Mindtree gained as much as 5.4% to Rs 1,753.9 apiece in early trade on Tuesday. Of the 36 analysts tracking the stock, 17 have a ‘buy' rating, eight suggest a ‘hold' and 11 recommend a ‘sell'. The stock trades 8.1% higher than its Bloomberg consensus 12-month price target of Rs 1,611.3 apiece.
Here's what the analysts have to say...
Morgan Stanley
- Maintains ‘equal-weight' rating; raises price target to Rs 1,645 apiece from Rs 1,440.
- Margins significantly better is a trend similar to the last few quarters.
- Margin benefits can be used to drive growth.
- Management expects broad-based growth momentum to continue, even as full recovery in travel can be some quarters away.
- Possibility of positive surprise on margins going forward.
- Raises FY21-23 EPS estimates by up to 12% owing to margin improvement.
Emkay
- Maintains ‘sell' rating but hikes price target to Rs 1,580 apiece from Rs 1,490.
- Broad-based revenue growth, sharp margin expansion, healthy deal intake some key positives.
- Continued softness in BFSI disappointing.
- Management said it has sufficient levers to absorb salary hikes.
- Raises FY21, FY22 and FY23 EPS estimates by 17.6%, 15.1% and 6.2%, respectively, to factor better margin trajectory and improving demand outlook.
- Remains sellers due to dependency on top client, anticipated sub-par revenue growth, unsustainable margins and rich valuations.
Motilal Oswal
- Maintains ‘neutral' rating; raises price target to Rs 1,765 apiece from Rs 1,610.
- Can continue to benefit from strong demand environment, given the high exposure to cloud.
- Raises FY22 Ebitda margin expectation to 21.1% despite near-term drag due to wage hikes and gradual resumption of travel.
- Raises FY22 and FY23 EPS estimates by 10% and 11%, respectively, to factor in the margin expansion.
- Risk-adjusted valuation remains unattractive.
- Sees limited upside as most positives as already captured.
Prabhudas Lilladher
- Maintains ‘buy' rating; raises price target to Rs 1,940 apiece from Rs 1,792.
- Highlight of the quarter was the sequential beat on margin performance.
- Raises revenue growth estimates by an average 1.7% for FY22 and FY23.
- Upgrades FY22 and FY23 EPS estimates by 4.6% and 8.3%, respectively,
- Expects massive upgrade in EPS from consensus.
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