KRChoksey is bullish on MindTree and has recommended accumulate rating on the stock with a target of Rs 1498 in its research report.
"MindTree, revenue grew by 4.5 percent QoQ (in USD terms) in Q4 FY14 against our expectation of 3.6 percent QoQ growth in revenue. Higher than expected revenue growth was led by strong traction in Hi-Tech vertical which increased by 6 percent QoQ (in USD terms), which is almost double of the growth rate we projected for Hi-Tech. EBITDA margin improved by 200 bps QoQ to 21.5 percent in Q4FY14 versus our estimates of increase by 36 bps QoQ. Positive surprise at EBITDA margins front was on account of dip in 'Other Operating Expenses (excl subcontractor charges) by 182 bps QoQ as percentage of sales in Q4 FY14."
"The company expects EBITDA margin (on constant currency basis) in FY15E to remain more or less in line with FY14 i.e. 20 percent. We believe, inspite pressure of wage hike and INR appreciation on EBITDA margin, 20 percent margin level is attainable supported by margin levers such as utilization rate (scope to improve same from current rate of 68.5 percent to 73 percent), widening of employee pyramid base (number of employees having less than 3 year experience stood at 28 percent of total employee base) and high exit rate i.e. 21.5 percent EBITDA margin in Q4 FY14. We continue to believe MindTree will be one of the leading Tier II IT companies in terms of revenue growth rate in FY15E and FY16E. Moreover, we believe that the company has enough levers at its disposal to protect EBITDA margins in FY15E and FY16E. Taking the same into account we recommend "ACCUMULATE" on the stock with a target price of Rs.1,498 by assigning P/E multiple of 11.5 times (around 20 percent discount to target P/E multiple of HCL Technologies) to its FY16E adjusted EPS of Rs. 130," says KRChoksey research report.
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