INSUBCONTINENT EXCLUSIVE:
Reliance Securities has a buy call on Mindtree with a target price of Rs 1,050.
The current market price of Mindtree is Rs 947.80.
Time
period given by the brokerage is one year when Mindtree price can reach the defined target
The brokerage recently interacted with the management of Mindtree for a business update
all-time high in value terms
Clients are investing in digital transformation almost across-the-board on one hand while looking for cost optimisation on traditional
services through automation on the other
On account of the volatile global macroeconomic environment, visibility of IT budgets has reduced to 3-4 quarters, as against 3-4 years
earlier.
Talent shortage biggest challenge; BOT use to drive re-skilling: A challenge is re-skilling employees on new technologies
Mindtree is focusing on automation through BOTs, leading to savings on time spent by employees on repetitive tasks and refocusing efforts on
Mindtree had 518 BOTs in operation as of 3QFY19-end
Cost savings are passed on to the customer
Cost of talent is on the rise led by the shortage of digitally trained staff
This is leading to a rise in the use of subcontractors
The cost of subcontracting rose by gt;62 per cent YoY in 3QFY19 (up 151bps YoY as a percentage of revenue); figures for 9MFY19 are 59 per
Menon is focusing on several levers to manage margins including lowering subcontracting cost, raising utilisation close to 80 per cent
ex-trainees, employee pyramid and higher offshore component
Thus far in 9MFY19, EBITDA margin has risen by 250bps YoY, with EBITDA in absolute terms up gt;55 per cent YoY
range between 15.5-16 per cent over the next 2 years.
Retail, travel outlook healthy; BFS to remain subdued: From a vertical perspective,
Retail, Travel and Hi-Tech Media are witnessing substantial digital transformation investments by client organisations
Insurance is also seeing digital investments, with Mindtree one of the main partners for Duck Creek (PC insurance products) after
On the other hand, BFS vertical remains subdued, as the company has been unable to meaningfully participate in digital investments, being a
same as given post 3QFY19 earnings conference call, with revenue to grow at a better pace than 3Q, while margin is likely to remain flattish
Retail, Travel and Hi-Tech verticals
TCV wins grew by 16.8 per cent YoY in 9MFY19, reflecting good underlying business growth and providing good revenue visibility
We maintain our BUY recommendation on the stock with a Target Price of Rs 1,050
A key overhang is the stake sale of VG Siddhartha, the single-largest shareholder in Mindtree, which could lead to possible management
changes as the buyer will then acquire the majority stake.
