We remain ?overweight? on Mindtree and revise our FY16e upward by 8% and roll over to September 2016e earnings, in line with other IT companies, to arrive at our target price of R1,200.
The stock is currently trading at 15x on 12-month forward EPS. The recent strong performance and robust growth outlook have led to upward revisions in growth estimates and warrants valuation premium compared to other mid-cap IT companies.
We increase our valuation multiple to 14x (from 12x) at a 15% premium to the historical 10-year average mid-cap PE multiple. We are 2% above consensus FY16e EPS.
Mindtree has consistently delivered industry leading performance in the past few quarters. The management has successfully implemented key strategic initiatives such as (a) improving client mining; (b) enhancing its sales and marketing effectiveness; and (c) growing digital technology revenues.
As a result, the company has seen acceleration in growth, reporting a CQGR of 4.5% in the past six quarters (Q4FY13-Q2FY15) versus 1.8% between Q2FY12 and Q4FY13. Increased sales effectiveness has led to a fifth consecutive quarter of robust deal signing with a total contract value of $165 million in Q2FY15.
Mindtree reported a revenue growth of 4.4% q-o-q in cc and flat margins q-o-q, in line with our estimates. The impact of wage increase was offset by absence of visa costs, improvement in utilisation and rupee depreciation. Overall EPS was R16.4, up 7% y-o-y, benefitting from higher than expected forex gains. Client mining continues to remain strong as top five customers grew 4.5% q-o-q.
By HSBC
