This midcap IT stock turned Rs 10,000 to over Rs 2 lakh in 10 years

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Long term investing has the power the change fortunes. You just need patience and the ability to pick the right stock. Midcap IT firm Mindtree is one such stock that has rallied more than 2,000% during the past 10 years as the company has been able to capture evolving market dynamics with solutions that help enterprises navigate.

As a result, consolidated gross sales of the company has grown at a CAGR of nearly 20% to Rs 7,764.30 crore in FY20 against Rs 1,296 crore in FY10. Likewise, operating profit and net profit increased by nearly 14% and 11% annually to Rs 1,157 crore and Rs 631 crore, respectively, during the same period.

Shares of the company have grown 2,091% to Rs 1,977 on March 24 from Rs 90.24 on the same day in 2011. The rise in share price indicates that an investment of Rs 10,000 has now turned to over Rs 2.19 lakh during the past 10 years. On the other hand, Mindtree has gained 138% in the past one year and over 210% in five years. The benchmark BSE Sensex has gained nearly 70%, 94% and 157% in one year, five years and 10 years, respectively.

Analysts are positive on Mindtree as they believe that cloud transformation momentum to sustain in the long term. Brokerage Prabhudas Lilladher has ‘Buy’ on the company with a price target of Rs 2,170.

“IT services deal sizes are only getting larger, as the cloud has become an integral part of every aspect of digital transformation. Management stated that cloud led large deal momentum will continue for next 3-4 years because client’s business models will keep evolving as they realise the benefits of cloud-native applications,” Prabhudas Lilladher said in a report.

The brokerage has also increased EPS estimates by around 5% for FY22-23 led by management’s confidence in delivering industry-leading growth in the next financial year. Scope to further improvement in margins supported by revenue growth, recovery in TTH (travel & hospitality) and strong growth outlook in rest of the verticals and sustenance of cloud led large deal momentum in the longer term will further support Mindtree.

Going ahead, there are hopes that the company may also focus on merger and acquisition which would help to enter the white spaces within the key operating geographies.

With a 60% stake in Mindtree, engineering conglomerate Larsen and Toubro Ltd (L&T) gained the controlling interest in the Bengaluru-based IT company in 2019.

Commenting on the change in ownership, Motilal Oswal Financial Services said, “Since July 2019, post the disruption brought on by the ownership change, Mindtree has been undertaking encouraging measures toward achieving stability in both its client and employee counts. The strategy change to increase focus on annuity revenue and tail account rationalisation is already reflected in the revenue and client mixes. Consistent margin expansion and a positive outlook for the same are key positives.”

However, it believes that the key positive are already captured by the market. Therefore, it sees limited upside at the current valuations. Motilal Oswal Financial Services has a ‘Neutral’ call on Mindtree with a price target of Rs 1,930.