Apurva Prasad, Institutional Research Analyst, HDFC Securities and Amit Chandra, Institutional Research Analyst, HDFC Securities.
Mindtree - The finale quarter
Mindtree (MTCL) posted a strong revenue and margin performance in Q2FY23; revenue was up 5.7% QoQ and 20.6% YoY. Key positives for MTCL included (1) strong deal bookings of USD 518mn in Q2 (second highest ever quarterly TCV, following the highest-ever in a seasonally strong Q1) and USD 1bn+ in H1FY23 providing growth visibility; (2) growth consistency of 5%+ with robust growth across verticals (ex-retail), service-lines (including customer success serviceline) and in T1 account; and (3) EBITDAM resilience supporting 27% YoY growth in EPS in Q2. Near-term growth moderation is expected to be impacted by furlough in Q3 as well as integration with LTI. Growth drivers of synergies is on the anvil as the merger with LTI is expected to be completed in Q3FY23E. Maintain BUY on MTCL, with a TP of INR 3,800, valuing the stock at 28x Jun24E EPS.
Q2FY23 highlights: (1) MTCL reported a seventh consecutive quarter of revenue growth of > 5% QoQ CC at USD 422mn (higher than our estimate of USD 415mn), +5.7% QoQ in USD terms (+7.2% QoQ CC), led by healthy growth in a top account (+6.9% QoQ). (2) Among the verticals, growth was led by BFSI (+10.1% QoQ), followed by travel (+8.8% QoQ); and communications, media & tech (+4.3% QoQ). However, retail, CPG and manufacturing declined -0.7% QoQ, impacted by ramp-down in a retail client. (3) Deal TCV in Q2FY23 was at USD 518mn, +44% YoY. (4) MTCL had a net headcount addition of 835 in Q2 (vs 2,384 in Q1). Attrition declined marginally by 40bps QoQ to 24.1%, which indicates signs of stabilisation. (5) The management remains confident of delivering EBITDAM >20% for FY23E.
Outlook: We have factored in USD revenue growth of +20/+12.2/+12.6% and EBITDAM at 20.2/19.7/19.7% for FY23/24/25E respectively. We expect an EPS CAGR of 15% over FY22-25E.