HDFC Securities has downgraded Mindtree to 'Neutral' from 'Buy' with target price of Rs 1,418 in its report.
Mindtree's 3QFY15 results were a mixed bag. USD revenues were marginally below our expectations. However, EBIDTA margin beat led to PAT coming in 5% above our estimates. We model Mindtree's USD revenues to grow by 17.4% in FY15 which would be the strongest organic growth amongst peers. Cross selling of underpenetrated services and traction in Digital Initiatives is aiding growth.
Mindtree expects a steady demand for FY16 driven by a ramp up in client spends in SMAC Technologies as well as strong traction in the top 30 accounts. Stock has appreciated 45% over the past three months and currently trades at rich valuations (16x FY17 EPS). This is at a 5% premium to Infosys' valuations. We believe a volume decline of 1.5% witnessed during the quarter and a modest revenue growth in 3QFY15 might not satiate the street's high expectations.
Commenting on the investment rationale, the stock broker said, ''While we continue to like Mindtree, we believe that current price points appear unfavorable. We downgrade our rating to Neutral (Earlier Buy). Our TP is upgraded by 20% to Rs 1,418/sh (16x FY17 EPS) on the back of P/E multiple upgrade and rollover to FY17.''
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