Add Mindtree, target Rs 1090: HDFC Securities

HDFC Securities has given a add rating to Mindtree with a target price of Rs 1090. The share price moved up by 1.82 per cent from its previous close of Rs 977.95. The stock’s last traded price is Rs 995.75.
MindTree Ltd., incorporated in the year 1999, is a Mid Cap company (having a market cap of Rs 16009.77 Crore) operating in IT Software sector.

Mindtree Ltd. key Products/Revenue Segments include Software Development Charges which contributed Rs 7021.50 Crore to Sales Value (100.00 % of Total Sales)for the year ending 31-Mar-2019.

Investment Rationale
The brokerage has maintained ADD rating on Mindtree, following a sub-par 1Q revenue performance, offset by its strong and sustainable operating trajectory. Significant growth divergence has been witnessed in the portfolio with T1 account (30% of revenue) posting double-digit QoQ, travel & hospitality (8% of 1Q revenue) downsizing to half sequentially and the residual business (~62% of revenue) posting -4.6% QoQ. Key positives include the following: (1) strong and institutionalised operational recovery, supported by SG&A optimisation, (2) growth recovery in 2Q, supported by the Realogy (large deal) ramp-up and demand recovery ex-travel & hospitality on strong renewal deal wins; and (3) DSO (including unbilled) moderation supporting strong cash generation, coupled with improving segmental profitability. Risks remain a skewed growth profile. Our target price of Rs 1,090 is based on 18x Jun-22E EPS (+5% increase in EPS estimate).

Financials
For the quarter ended 30-06-2020, the company has reported a Consolidated sales of Rs 1908.80 Crore, down -6.91 % from last quarter Sales of Rs 2050.50 Crore and up 4.07 % from last year same quarter Sales of Rs 1834.20 Crore Company has reported net profit after tax of Rs 213.00 Crore in latest quarter.

Promoter/FII Holdings
Promoters held 73.49 per cent stake in the company as of June 30, 2020 while FIIs held 10.39 per cent and others 8.24 per cent.