Prabhudas downgrades MindTree to 'accumulate', target Rs 960

The business fundamental remains strong, but leaves limited room for earnings upgrade in near term. Hence, we downgrade MindTree to 'Accumul from 'Buy' with a revised target price of Rs960 (from Rs930).

The management retained commentary for Q4FY13, wherein the growth likely to be in line with Q3FY13, Prabhudas Lilladher said in a report. However, the on-boarding of ~500 freshers and full impact of S&M investment could result in softer margin compared to Q3FY13. Moreover, unfavourable currency movement could dampen the earnings growth further.

The management is more optimistic on the clients’ IT spend as the deal pipeline gets stronger with a greater confidence of budget conversions into spends. We expect continued success of their account mining strategy as it increases investment in account managers and S&M team.

The brokerage is factoring in 13% US$ terms growth for FY14 along with flattish margin. There is limited scope for our earnings upgrade in the near term. We remain optimistic about the company’s ability to push margin higher with G&A rationalization and higher utilization. The meticulous client mining strategy along with new logo wins likely

to drive the mid-teen growth in FY14.

The brokerages sees earnings moderation in near term as the company enters investment phase. It has factored in FY14 growth 4pp stronger than FY13 with same margin profile. The brokerage also expects moderate upgrade in consensus’ expectation in near term. It has downgraded MindTree to 'accumulate' with a revise target prive of Rs960, 10x FY14 earnings estimate.