MindTree shares rally on acquisition spree

NEW DELHI: Stocks of MindTree rallied nearly 5 per cent in trade today after the midcap IT firm said it would acquire two firms - US-based Relational Solutions and UK-based Bluefin Solutions - for a total consideration of about Rs 480 crore.

The stock ended the day 3.26 per cent higher or Rs 40 at Rs 1,268.75.

In a note, brokerage SBICAP Securities said, “Bluefin revenue run rate stands at 29 million pound and operates at lower-than-Mindtree’s margins. Relational revenue run rate stands at $3.2 million, with better-than-Mindtree’s margins.”

But the brokerage expects the acquisition to be EPS accretive with immediate effect.

The company, post market hours of Thursday, said that its net profit rose 6.8 per cent YoY to Rs 138.2 crore in the June quarter, compared with Rs 129.4 crore in the year-ago quarter.

Revenues for the first quarter were up 16.3 per cent at Rs 981.60 crore, compared with Rs 843.50 in the corresponding quarter of last year.

The management remained confident of beating the Nasscom F16e revenue growth expectations of 12–14 per cent.

"The stock currently trades at 18.8x/16.1x F16e/F17e EPS. Considering nearly 12 per cent correction in stock prices in the last 3 months and broad-based revenue growth momentum, we upgrade stock to HOLD with a revised target price of Rs 1,140 at 15x Mar’17e earnings," said SBICAP Securities.

However, the brokerage expects some pressure on the company's margins in the near term. It may weigh on the stock performance, the brokerage said.