Buy This Multibagger Large-Cap IT Stock For 38% Potential Gains: HDFC Securities

HDFC Securities has a buy call for Mindtree Ltd, an L&T group company, for a target price of Rs 3,830 per share. The report comes after Mindtree declared the Q1FY23 results. Mindtree delivered in-line revenue while margin was better than our estimate in Q1, supported by flat sub-contracting. The sequential growth of 5.5% CC followed the sixth consecutive quarter of 5%+ sequential growth, supported by broad-based momentum across service lines.

Mindtree Stock Outlook

The current market price (CMP) of Mindtree is Rs 2,786.50 per share after closing on Thursday. It was opened at Rs 2,960 per share, while the previous close was Rs 2,900.60 per share. The CMP of the stock is Rs 328.95 above the 52-week low of 2,457.55 per share level, recorded on July 13, 2021. The 52-week high is Rs 5,060 per share, recorded on November 18, 2021.

According to Sharekhan's estimated target price of Rs 3,830 per share and the CMP of Rs 2,786.50 per share, the stock sees a potential upside of 38% in 12 months

The stock has slid 3.21% in the past 1 week and 4.64% in the past 1 month, respectively. It has given 3.09% of positive returns in 1 year. On 3 and 5 years of investment, it has given multibagger returns of 270.47% and 441.12%, respectively.

Q1FY23 highlights

• Mindtree reported a sixth consecutive quarter of revenue growth of > 5% QoQ CC at USD 399mn (in line with our estimate of USD 400mn), +4% QoQ in USD terms (+5.5% QoQ CC), led by healthy growth in a top account (+8.6% QoQ).
• EBITDAM improved by 10bps QoQ to 21.1%, supported by operational efficiency (+50bps) and FX tailwind (+70bps); partially offset by visa cost (-50bps) and one-time M&A cost (-60bps).
• Among the verticals, growth was led by travel (+11.3% QoQ; airline & hospitality exceeding pre-COVID level), BFSI (+6.6% QoQ); and communications, media & tech (+5.9% QoQ). However, retail, CPG and manufacturing declined -8.8% QoQ, impacted by ramp-down in a retail client.
• Deal TCV in Q1FY23 was at a record high of USD 570mn, 13.1% YoY.
• Mindtree had a net headcount addition of 3,284 in Q1 (1,500 fresher intakes) and it intends to continue >1,500 quarterly fresher additions in FY23E.

Key positives

• Consistency in delivering industry-leading growth > 5% QoQ CC, (2) strong credentials in hi-tech and travel vertical (airlines and hospitality exceeding pre-COVID levels)
• Healthy TCV bookings with TCV growth of 13% YoY
• Focus on building full stack services and client rationalisation (focus on 100 accounts that contribute 90% of the total revenue)
• Stable sub-contracting expenses (9.6% of the revenue in Q1 vs 10.2% in FY22).

HDFC Securities Suggests Buy For Target Price of Rs 3,830 per share

The brokerage said, "We have factored in USD revenue growth of +19.9/+16.4% and EBITDAM at 20.2/19.8% for FY23/24E. We expect an EPS CAGR of 17% over FY22-24E."

Added, " We expect MTCL to deliver a high-teens growth CAGR in FY22-24E, supported by expansion into Continental Europe and core portfolio focus (cross-sell), with predictable margins (management maintained 20%+ EBITDAM outlook). Maintain BUY with a TP of INR 3,830, valuing Mindtree at 28x FY24E EPS"

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.