We attended Mindtree’s (MTCL’s) Analyst Day, exactly where the management shared its new 4x4x4 approach and possibilities in digital trends. Here are the important highlights from the meet: MTCL announced its new 4x4x4 approach, with 4 business groups, 4 service lines, and 4 geographies. While the 4 business groups are in its current locations of operations, the alterations in service lines (Customer Success, Data and Intelligence, Cloud and Enterprise IT) point to an elevated concentrate on Digital (3 out of the 4 service lines are in the Digital domain).
It plans to develop neighborhood teams and leadership in non-US geographies (UK and Ireland, Continental Europe and Asia-Pacific and RoW) to sell business capabilities to a wider client base. Mgmt also announced strengthening of its Consulting practice to superior cross-sell its new service lines.
Healthcare a prospective future addition to business verticals: MTCL announced it is hunting to expand its presence in the Healthcare vertical as it is seeing new company overlap involving its core verticals of CPG, Retail and Technology into locations like Payer, Provider and Device Manufacturing. It plans to develop this steadily, making use of existing capabilities and has no plans for important investments to boost its presence swiftly.
New approach would have to have investments: We see the new approach of expanded regional concentrate and planned expansion into Healthcare as prospective additions to its medium-term income aspiration of developing above business development. But growing presence in Continental Europe and APAC would demand upfront investment, which can influence close to-term profitability. We would wait for additional progress on new approach prior to baking in any influence into our estimates.
Valuation and view
Since Jul’19, just after the disruption pertaining to ownership transform, MTCL has been taking methods toward attaining stability in its client and employee count.
Persistent weakness in the Top 2-10 client bucket
(-3.5% q-o-q, 8-quarter CQGR of -2%) is a concern. High exposure to Travel, Transport, and Hospitality is also anticipated to be a drag on all round recovery. The stock is presently trading at 21x FY22e EPS. We think important positives are currently captured and see restricted upside. Our TP implies 22x FY22 EPS. Maintain Neutral.