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Outperform rating on Mindtree shares: Credit Suisse

We maintain our ?outperform? rating on Mindtree on improved revenue visibility now

We maintain our ?outperform? rating on Mindtree Ltd on improved revenue visibility now. We raise our FY14-16e EPS by 4-6% and the target price to R1,700 (earlier R1,350).

Mindtree remains a top mid-cap pick for us in the sector. We like the management quality. While valuations for many mid-cap companies look attractive, revenue visibility is important ? and the company seems to have it.

The company reported strong Q2 numbers. While we were expecting strong sequential revenue growth of 4% ($ terms), actual revenue growth was even better at 5.4%. Ebit margins rose 260 bps q-o-q vs expectations for 190 bps q-o-q. Given the relatively high offshore proportion of revenue (59%), it is the most sensitive to the rupee fluctuations. It also recognises the exchange rate at the beginning of each month.

Consequently, it was a big beneficiary of the nearly 13% rupee depreciation that it witnessed in Q2. Net income dropped 5% q-o-q but was 17% ahead of estimates.

The better-than-expected forex line has helped. Europe and infrastructure management have been particularly strong. Mindtree added about 700 employees, taking the total to 12,941. Headcount is up 19% y-o-y. The interim dividend has increased from Rs 3 last year to Rs 5. Management expects increasing payout and to move to a quarterly one eventually.

Credit Suisse

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First published on: 18-10-2013 at 02:39 IST
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