IDEA2WIN - Buy: MindTree


CMP (NSE) 15:54, 27 May

2,866.40 117.84.29%




Information Technology

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Last updated on

03 Dec, 2021

MindTree (MTCL) was started in 1999 by industry professionals from Cambridge Technology Partners, Lucent Technologies and Wipro. In IT Services, it started with ADM as the mainstay. However, over the next few years, the company diversified into other services. It added testing and software product development services through the acquisition of Aztecsoft, whereas the infrastructure services offering was mainly organic. Lately, it has restructured the organisation by verticals and increased its focus on select verticals such as BFSI, retail, manufacturing and travel. Partnerships with Microsoft, SAP and Salesforce are some examples of their leadership in digital offerings. L&T acquired a controlling stake in the company in 2019.

Investment Rationale

Broad-based sequential growth across verticals: MTCL’s revenue growth QoQ was led by Retail (+29.6%) and Travel (+14.4%); BFSI saw further uptick (+8.4%), while Tech grew 5.6% QoQ despite flat growth in the top client. The top 2-10 and non-top-10 clients grew at 16-18% QoQ, demonstrating the breadth of growth in the client buckets. Deal wins of US$360mn were healthy, with TTM book-to-bill ratio at 1.27x, giving reasonable visibility on growth despite a fairly strong 1H delivery.

Revenue growth above estimates: 2QFY22 USD revenue of 350m grew 13.4% cc QoQ with broad based growth across verticals, service lines and geographies. The Communications, Media & Tech (CMT) vertical saw another quarter of solid growth at 5.6% QoQ, despite flat revenues at the top client. The Retail, CPG & Manufacturing (RCM) vertical clocked stellar growth of 29.6% QoQ this quarter, further accelerating over the 7.7% QoQ growth seen last quarter, aided by pent up demand from opening up of economies. The BFSI vertical continued its momentum from last quarter, clocking 8.4% QoQ growth. The Travel & Hospitality vertical continued its robust double-digit upward trajectory on a sequential basis (for a 4th straight quarter), this time growing 14.4% QoQ. MTCL announced deal wins with TCV of USD360m in 2Q (+19% YoY), with good mix of annuity and transformational deals. Management highlighted that there is visible uptick in spends on technology by enterprises, and that its client mining strategy is working well. Management reiterated that the demand environment is considerably robust and the growth momentum continuing. MTCL remains confident of delivering industry-leading, double-digit revenue growth in FY22.

Outlook & Valuation:

MTCL’s deal wins are improving and there is sharp recovery in the top clients too now, driven by rebound in their consumer facing verticals. Margin execution has been strong, despite strong hiring. The stock trades at 36x FY23ii P/E, at a premium to mid-cap peers but with strong FY22 outlook. We maintain BUY with a target of ₹5,140 as we still expect the earnings upgrade to continue in the near term.

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