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Robust order book to support revenue growth…

We attended the virtual analyst meet of Mindtree. The company, at the meet, reiterated its plans to register industry leading growth (that we assumed as 17% YoY in FY22E) and 20%+ EBITDA margins. Mindtree has healthy order book growth of 12.3% YoY while annuity type revenues will help deliver healthy FY22E growth. Further, the company highlighted its strategy of focusing on being end to end provider, client mining, expansion in Europe, focus on whitespace opportunities, dedicated hyperscaler vertical and industry partnership & consulting to drive long term growth.

Focus on whitespace opportunities, geographic expansion, hyperscaler, client mining key focus

The company highlighted long term growth through client mining, geographic expansion, whitespace opportunities and growth with hyperscalers. In terms of geography, Mindtree plans to increase investment in Europe with focus on UK, Nordics & DACH regions. Apart from Europe expansion, the company plans to expand in APAC, Middle East (with special focus on travel & BFSI clients) & Japan (with the help of parent). In addition, in terms of whitespace opportunity, Mindtree plans to expand in healthcare segment (with focus on digital transformation on provider & med tech) and security. The company has established a separate service line hyperscalers like Microsoft Azure, Google & AWS & SAAS vendors Salesforce & ServiceNow to capture the growing cloud market. Mindtree plans to capture 1.5x wallet share of clients for every dollar spent on client consumption. The company expects substantial growth of FY22E from cloud consumption.

L&T NxT acquisition to boost manufacturing capability

The company acquired L&T Nxt for | 198 crore. This acquisition will entail addition of products like smart assets, smart worker (for worker safety), smart material & logistics, smart projects and give Mindtree access to select clients in India & Middle East. The company will focus on data & analytics and reimagining business process part that will help in delivering end to end capability in manufacturing. These can also be expanded to retail and CPG.

Valuation & Outlook

The company’s strategy of focus on client mining, geographic expansion, partnership with hyperscalers and expansion in whitespace opportunities is expected to drive long term growth for Mindtree. This, coupled with healthy margin prompt us to be positive on the stock from a long term perspective. However, considering the recent run up in price, we downgrade the stock from BUY to HOLD with a revised target price of | 2480 (26x PE on FY23E EPS) (earlier target price | 2,390).

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