MTCL’s Q1FY23 performance beat consensus estimates at both revenue and margin levels. Revenue at $399 mn was up 5.5% q-o-q in cc terms (vs. consensus expectation of 4.8% q-o-q growth) and EBIT margin at 19.2% was up 30bps (vs. consensus expectation of 18.8%). EPS at Rs 28.57 was up 37% y-o-y.
Revenue performance was strong considering weakness in the retail verticalMTCL’s growth was across all verticals except for retail which recorded -8.9% q-o-q decline (in USD terms) due to two client-specific issues. The total contract value (TCV) of deal wins at $570 mn was up 13% y-o-y in Q1FY23 with a reasonable mix of annuity and transformation deals. MTCL noted that there could be a few pockets of weakness in certain clients impacted by ongoing macro-economic turmoil but at the aggregate portfolio level, it does not see any cause for concern over growth in the near term.
Client metrics tracking right directionMindtree’s efforts to grow beyond its top client (~26% of revenues) continue to be at play. Revenues from top client increased 8.6% q-o-q in USD terms while top 2-10 clients grew by 5.1% q-o-q. MTCL added 4 clients in $20-mn revenue band in Q1.
Hike FY23-24F EPS by ~2-3%We marginally raise our FY23-24F EPS by 2-3% to factor in better margin and also increase our TP by 3% to Rs 2,910 (set at an unchanged 20x FY24F EPS). Our target multiple is based on a 3-stage growth model discussed in our sector report. The stock is trading at ~ 20x FY24F EPS. We prefer Infosys in the large cap (INFO IN, Buy) space.
