Hold MindTree; target of Rs 690: ICICI Direct
ICICI Direct’s research report on MindTree
After a weak quarter performance in Q1FY20, Mindtree reported a good Q2FY20 with beat on revenues and in-line margins. Revenues in constant currency grew by 3.2% QoQ and 11.1% YoY while adjusted EBITDA margins expanded 40 bps QoQ to 13%. Growth in revenues was broad based among verticals across geographies. In terms of digital revenues, it increased 2.6% QoQ & 18.7% YoY and comprised 38% of revenues while digital TCV was up 2.2% QoQ. Pointers which were key draggers in this quarter were 1) Dip in total TCV by 5.2% QoQ 2) Increase in attrition to 16.5% (vs. 13% in Q2FY19) and 3) Decline in top 2-5 clients by 4.3% QoQ.
Increasing attrition from last 4-5 quarters and decline in realisation is a key near term concern. However, steady quarter, healthy deal pipeline from the new business and expected margin improvement in coming quarters are key positives to be look at. Hence, we revise our recommendation from REDUCE to HOLD with a revised target price of Rs 690/share. Key things to watch out in coming quarters are 1) Attrition 2) Realisation 3) Deal TCV and 4) Digital revenue growth.
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