Incorporated in 1999, MindTree Ltd. operates in two segments, viz; production engineering (PE) services and IT services. PE services include research and development (R&D) services and software product engineering (SPE). SPE provides full life cycle product engineering, professional services and sustained engineering services. IT Services offer consulting and implementation and post production support for customers in manufacturing, financial services, travel and leisure and other industries.
Valuation and view
Mindtree plans to remain a single segment specialist player and achieve strong client recall in the digital vertical. The company means to continue focus on BFSI, Travel and Transport, Hitech and Retail, CPG& Manufacturing verticals. Albeit, we expect strong revenue growth, scope for improvement in utilisation to act as tailwinds, were have factored in headwinds to margins in FY16 owing to appreciating rupee. We expect the top-line and bottom-line to grow at a CAGR of 17% and 14% respectively by FY17E.
At the current market price (CMP) of Rs.1,529, the stock trades at P/E multiple of 21.5x FY16E and 18.2x FY17E. We recommend ‘BUY’ with a target price of Rs. 1,680, assigning a forward P/E multiple of 20x, which implies a potential upside of ~10% to the CMP from 12 months perspective.
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