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Mindtree (NS:MINT): Mindtree (MTCL IN) delivered in-line revenue while the 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. Key positives include (1) 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), (3) healthy TCV bookings with TCV growth of 13% YoY, (4) focus on building full stack services and client rationalisation (focus on 100 accounts that contribute 90% of the total revenue), and (5) stable sub-contracting expenses (9.6% of the revenue in Q1 vs 10.2% in FY22).
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 MTCL at 28x FY24E EPS.
Mindtree
Consistent performer
Mindtree (MTCL IN) 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. Key positives include (1) 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), (3) healthy TCV bookings with TCV growth of 13% YoY, (4) focus on building full stack services and client rationalisation (focus on 100 accounts that contribute 90% of the total revenue), and (5) stable sub-contracting expenses (9.6% of the revenue in Q1 vs 10.2% in FY22). 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 MTCL at 28x FY24E EPS.
Q1FY23 highlights: (1) MTCL 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). (2) 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). (3) 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. (4) Deal TCV in Q1FY23 was at a record high of USD 570mn, 13.1% YoY. (5) MTCL 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.
Outlook 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.
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