Results Review For Mindtree, CESC

  • Stock Market Analysis
  • Editors Pick

Mindtree (NS: MINT ): Mindtree (MTCL) delivered healthy QoQ growth (following a very strong quarter) and margin beat (~100bps expansion) was the highlight of the quarter. Recovery in T1 business was encouraging and growth was broad-based across verticals, geographies, and service lines. Mindtree’s growth momentum is expected to continue, powered by the T1 account (+7.2% QoQ) and stable growth in non-T1 accounts (+3.8% QoQ), customer success (+3.9% QoQ) and cloud services (won 10 deals with cloud hyperscaler). The sustainable growth is validated by (1) strong deal TCV of >USD 300mn (TTM USD 1.6bn +14% YoY), which includes annuity and transformational deals; (2) lower dependence on sub-contractors; and (3) healthy growth in the travel vertical, which is almost touching the pre-pandemic level. The company is confident of delivering an EBITDA margin of >20%, despite the ongoing supply-side challenges, as it expects support from better margins in new deals, higher offshoring, and better pricing. To address the issue of rising attrition (+420bps), the company continues to hire freshers (>50% of total hire) and when the freshers come into the billing cycle, the dependence on sub-con will reduce and utilisation will revive. We maintain our revenue/EPS estimates for FY23/24E. Our target price of INR 5,060 is based on 37x Mar-24E EPS (25% CAGR over FY21-24E on a high base in FY21 of >70%). Maintain ADD.

CESC (NS: CESC ): CESC’s consolidated PAT in Q3FY22 remained flat at INR3.4bn (+0.6% YoY) as higher earnings across the Dhariwal project (from high merchant rates in Q3FY22) were offset by increased losses in the distribution franchisee (DF) business (a loss of INR100mn vs profit of INR70mn YoY), given subdued power demand and delays in loss recovery. Dhariwal continued to perform strongly, benefitting from rising merchant tariffs, while standalone PAT growth remained flat despite the delayed WBERC tariff order. The Dhariwal project has emerged as L1 for 210 MW bid in a medium-term tender floated by the Railway Energy Management Company (REMCL). CESC’s bid for a 100% stake in the Chandigarh discom is likely to receive a letter of intent (LoI) in Q4FY22. We now expect CESC’s franchisee division to attain profitability only in FY23 while reporting a loss of INR211mn in FY22 (vs the earlier estimate of INR112mn PAT). Accordingly, while we retain our BUY rating on CESC, we marginally lower our TP to INR119 (vs INR120 earlier). We have not included the Chandigarh discom in our valuation yet as we are waiting for LoA.

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