Gradual checkout

Mid-tier IT firm Mindtree has seen a tumultuous year — from L&T’s hostile takeover in July to the resignation of the founders and the stock tanking from Rs.980 to trade around Rs.700 for almost six months. But it seems to have turned a corner in 2020, gaining nearly 14% year-to-date to hit Rs.915. Although it is far from its 52-week high of Rs.1,062 that the stock hit in February after winning a deal worth more than $150 million, Mindtree is basking in its strong Q4 performance. The company’s sales grew 11.48% YoY while net profit rose almost 4%. Its press release also mentioned that it has 307 active clients as of March 31, which includes 23 $10-million clients.

To cash in on this rebound, co-founders and former promoters Krishnakumar Natarajan and NS Parthasarathy sold shares worth Rs.26.6 million in the last week of April. Additionally, Natarajan’s son K Abhirath also sold shares worth Rs.44.3 million. But this has hardly made a dent in their holding, which together is worth Rs.8.12 billion. Interestingly, Mindtree’s majority owner, L&T increased its stake in March from 60.55% to 61.08%, picking up more than 900,000 shares for Rs.730 million.

Analysts seem to have mixed views about Mindtree. Macquarie Securities has lowered its FY22 earnings estimate by 9-22% due to the firm’s high exposure to travel and hospitality segments, which contribute 16.2% to total revenue. They believe this revenue could come under pressure in H1FY21 due to demand destruction in a post-COVID world. However, Edelweiss Securities and Motilal Oswal Securities are both bullish on the stock with price target of Rs.945 and Rs.960, respectively. Due to its expertise in digital solutions, Motilal Oswal analysts believe Mindtree might benefit from the adoption of digital tools. “In conjunction with the tailwind due to an exchange rate assumption reset, we upgrade our FY22 EPS by up to 15%,” stated their report post the Q4 results.

While mutual funds have cut their stake from 4.25% in December 2019 to 3.68% in March 2020, fiis have raised it from 10.46% to 11.86%. Analysts at Edelweiss believe Mindtree’s margins will remain resilient against disruption, and even if it doesn’t, they state, “the company has enough margin levers to offset adverse impacts”.