MindTree Result Updated

8/2/2019 MindTree Result Updated

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Please refer to important disclosures at the end of this report 1

(` cr) 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy)Net revenue 526 520 1.2 391 34.4EBITDA 99 90 9.9 44 122.9

EBITDA margin (%) 18.7 17.3 149bp 11.3 744bp

PAT 69 61 13.8 32 113.4Source:Company, Angel Research

MindTree reported modest results for 4QFY2012, with OPM and PAT coming in

ahead of ours as well as streets expectations. The company reported a 4.9% qoq

increase in volumes. MindTree has been one of the good performers on the

revenue as well as margin front in the Indian IT mid-cap space, posting a 4.5%CQGR in its revenue over the past eight quarters. The company expects to post

average industry growth in FY2013. We maintain our Buy rating on the stock.Quarterly highlights: For 4QFY2012, MindTree reported USD revenue ofUS$105mn, up merely 1.3% qoq, due to a 3.6% pricing decline because of

bump-up in pricing in 3QFY2012, which got normalized in 4QFY2012. EBITDA

margin improved by 149bp qoq to 18.7%, largely on the back of gains derived

from lower employee costs. PAT came in at `69cr, up 13.8% qoq.

Outlook and valuation: MindTree derives most of its IT services business (~66% ofrevenue) from growth verticals such as manufacturing and travel and

transportation (T&T). BFSI vertical is witnessing slightly higher signs of pressureand caution. Management is confident that its IT services business would continue

its momentum and has given offers to 3,000 campus graduates for FY2013, who

are expected to join from May 2012. This would help MindTree to rationalize its

employee pyramid and cushion its margins. Management expects the PES

business to post almost double-digit revenue growth in FY2013. Overall, we

expect the company to record an 11.5% and 13.1% CAGR in USD and INR

revenue, respectively, over FY2012-14E. We expect the companys EBITDA

margin to increase from 15.3% in FY2012 to 16.0% in FY2013. Further, we

expect the company to record a 13.8% CAGR in its EBITDA over FY2012-14E. Wevalue the stock at 10x FY2014E EPS i.e., with a target price of `585, andmaintain our Buy rating on the stock.Key financials (Indian GAAP, Consolidated)Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ENet sales 1,296 1,509 1,915 2,172 2,450% chg 4.7 16.4 26.9 13.4 12.8

Net profit 215 102 218 221 240% chg 310.8 (52.6) 114.6 1.3 8.3

EBITDA margin (%) 18.9 11.8 15.3 16.0 15.5

EPS (`) 54.4 24.9 53.7 53.9 58.5P/E (x) 9.0 19.6 9.1 9.1 8.4

P/BV (x) 2.9 2.6 2.1 1.7 1.4

RoE (%) 32.0 13.1 22.8 18.9 17.0

RoCE (%) 26.8 13.7 23.2 22.2 19.8

EV/Sales (x) 1.4 1.2 0.8 0.7 0.6

EV/EBITDA (x) 7.4 10.3 5.6 4.5 3.7

Source: Company, Angel Research

BUYCMP `488

Target Price `585

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 24.1

MF / Banks / Indian Fls 9.5

FII / NRIs / OCBs 17.7

Indian Public / Others 48.7

Abs. (%) 3m 1yr 3yr

Sensex 5.9 (11.5) 56.7

Mindtree 13.8 26.9 99.2

Face Value (`)

IT

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

1,978

0.4

10

531/321

31,568

BSE SensexNifty

Reuters Code

MTCL@IN

17,1515,226

MINT.BO

Ankita Somani+91 22 39357800 Ext: 6819

[email protected]

MindTreePerformance highlights

4QFY2012 Result Update | IT

April 16, 2012


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Mindtree | 4QFY2012Result Update

April 16, 201 2

Exhibit 1:4QFY2012 performance (Indian GAAP, Consolidated)

Y/E March (` cr) 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy) FY2012 FY2011 % chg (yoy)Net revenue 526 520 1.2 391 34.4 1,915 1,509 26.9Cost of revenue 318 332 (4.2) 273 16.3 1,248 1,015 23.0Gross profit 208 188 10.7 118 76.6 667 495 34.9

SG&A expenses 109 98 11.5 74 48.7 374 317 18.2

EBITDA 99 90 9.9 44 122.9 293 178 64.8Depreciation 17 17 (2.9) 18 (8.7) 70 71 (2.4)

EBIT 82 72 13.0 26 216.7 223 107 109.6

Interest expense 0 0 0 0 0

Other income 1 1 10 38 24

PBT 83 73 12.5 36 130.5 261 131 100.2

Income tax 14 13 6.3 4 288.6 43 29 49.3

PAT 69 61 13.8 32 113.4 218 102 114.6

Minority interest - - - - - - - -

Share in profit of associates - - - - - - - -

Adj. PAT 69 61 13.8 32 113.4 218 102 114.6EPS 16.8 14.9 12.7 7.9 112.5 54.1 24.9 117.5

Gross margin (%) 39.5 36.1 342bp 30.1 944bp 34.8 32.8 207bp

EBITDA margin (%) 18.7 17.3 149bp 11.3 744bp 15.3 11.8 351bp

EBIT margin (%) 15.5 13.9 162bp 6.6 895bp 11.7 7.1 460bp

PAT margin (%) 13.1 11.6 145bp 8.1 503bp 11.2 6.6 454bp


Exhibit 2:Actual vs. Angel estimates

(` cr) Actual Estimate % VarNet revenue 526 528 (0.4)

EBITDA margin (%) 18.7 17.7 104bp

PAT 69 55 24.4


Good performance yet again

For 4QFY2012, MindTree reported USD revenue growth of merely 1.3% qoq to

US$105mn, due to a 3.6% pricing decline because of bump-up in pricing in

3QFY2012 (due to one-time transition revenue realized from a package

implementation deal in Europe), which got normalized in 4QFY2012. Volume

growth, however, was strong at 4.9% qoq. In INR terms, revenue came in at

`526cr, up 1.2% qoq.


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April 16, 201 3

Exhibit 3:Trend in revenue growth (qoq)


Service verticals wise, the companys growth was led by traditional IT services and

its anchor service offerings such as application development (contributed 40.8% to

revenue), application maintenance (contributed 23.4% to revenue) and

independent testing (contributed 17.9% to revenue), revenue of which grew by

3.9%, 0.9% and 11.3% qoq, respectively. Revenue from discretionary services such

as consulting and IP licensing and package implementation declined by 6.8% and

27.1% qoq (such huge decline due to high base effect on account of one time-

revenue realization in 3QFY2012), respectively. Also, revenue from infrastructure

management and technical support service declined by 5.5% qoq during the

quarter.

Exhibit 4:Growth trend in service verticals

Particulars % to revenue % chg (qoq) % chg (yoy)Application development 40.8 3.9 15.8

Application maintenance 23.4 0.9 19.2

Consulting and IP licensing 4.6 (6.8) 40.0

Package implementation 3.6 (27.1) 37.0

Independent testing 17.9 11.3 22.5

Infrastructure mgmt. and tech. support 9.7 (5.5) 44.1


Industry wise, revenue from total IT services (ITS) during the quarter grew by 1.8%

qoq. In ITS, the major growth driver again was T&T, revenue of which grew by

8.7% qoq. Revenue from BFSI and manufacturing increased by 2.8% and 1.3%

qoq, respectively. Product engineering services (PES) reported merely a 0.4% qoq

increase in revenue during the quarter. Management indicated that PES business is

expected to post almost double-digit growth in FY2013. Management also

indicated that it is seeing increased signs of caution and pressure from its

BFSI clients.

86.3

92.5

101.3 103.7

105.0

1.2

7.3

9.5

2.3

1.3

0

1

2

3

4

5

6

78

9

10

60

70

80

90

100

110

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

(%)

(US$mn)

Revenue (US$ mn) qoq growth (%)


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April 16, 201 4

Exhibit 5:Growth trend in industry segments

Particulars % to revenue % chg (qoq) % chg (yoy)ITS

Manufacturing 15.4 1.3 17.2 BFSI 21.2 2.8 27.2

T&T 13.2 8.7 37.4

Others 17.4 (3.7) 52.4

PES 32.8 0.4 4.8


Geography wise, India and U.S. emerged as the major growth areas for the

company, as revenue from these regions grew by 5.5% and 3.3% qoq,

respectively, during the quarter.

Exhibit 6:Growth trend in geographies

Particulars % to revenue % chg (qoq) % chg (yoy)U.S. 57.3 3.3 16.3

Europe 27.7 (0.1) 54.0

India 7.5 5.5 1.5

Rest of World 7.5 (10.6) 0.4


Hiring and utilization

During 4QFY2012, gross and net addition of MindTree stood at 502 and 66,

respectively, taking its total employee base to 11,000. The company added 62 net

employees in software professionals, whereas sales and support employee base

witnessed addition of four people. Attrition rate (LTM basis) during the quarter

decreased to 18.2% in 4QFY2012 from 19.4% in 3QFY2012.

Management indicated that it has given ~3,000 campus offers for FY2013; the

joining ratio of these is expected to be 70-75% and most of these are expected to

join in 1HFY2012.

Exhibit 7:Employee metrics

Particulars 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Software professionals 8,862 8,887 9,903 10,268 10,330

Sales and support 685 690 677 666 670

Total employee base 9,547 9,577 10,580 10,934 11,000

Gross addition 435 630 1,478 846 502

Net addition (124) 30 1,003 354 66

Attrition LTM (%) 25.1 25.6 21.7 19.4 18.2


Utilization level, excluding as well as including trainees, declined to 72.1% and

67.8% in 4QFY2012 from 75.8% and 68.3%, respectively, in 3QFY2012. The

company expects utilization level to move up going ahead, as strong fresher hiring

done in FY2012 will start turning billable.


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April 16, 201 5

Exhibit 8:Utilization trend


Margin enhances

MindTree has been consistently improving its operating margins (excluding the

benefit from INR depreciation) by gaining operational efficiency from broadening

its employee pyramid. Currently, the number of employees with less than three

years of experience in the company stands at ~36% as against 30% at the starting

of FY2012. For 4QFY2012, MindTrees EBITDA and EBIT margins improved by

149bp and 162bp qoq to 18.7% and 15.5%, respectively, largely on the back of

gains derived from lower employee costs.

Exhibit 9:Margin profile


PAT came in above expectations at `69cr, up 13.8% qoq, on the back of healthy

operating performance. Forex loss stood at `4cr in 4QFY2012 vs. `2.5cr in

3QFY2012.

70.9

72.5

71.368.3 67.8

72.5 72.9

77.7

75.8

72.1

66

68

70

72

74

76

78

80


(%)

Ut ilisa tion - incl. t ra inees Ut ilisa tion - exc l. t ra inees

30.1 30.132.3

36.139.5

11.3 11.112.9

17.3 18.7

6.6 6.89.1

13.915.5

0

5

10

15

20

25

30

35

40

45


(%)

Gross margin EBITDA margin EBIT margin


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April 16, 201 6

Client pyramid

MindTree added six new clients during 4QFY2012. The company added one new

client in the US$5mn-10mn revenue bracket and two clients in the

US$1mn-5mn revenue bracket.

Exhibit 10:Client metrics

Particulars 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12Active clients 277 283 270 258 237

New clients added 39 25 15 9 6

US$1mn-5mn 53 53 55 58 60

US$5mn-10mn 8 7 10 9 10

US$10mn plus 6 7 7 7 7


Outlook and valuation

MindTree derives most of its IT services business (~66% of revenue) from growth

verticals such as manufacturing (~15% to revenue) and T&T (~12% to revenue).

BFSI (~21% to revenue) vertical is witnessing slightly higher signs of pressure and

caution. Management is confident that its IT services business would continue its

momentum and has given offers to 3,000 campus graduates for FY2013, who are

expected to join from May 2012. This would help MindTree to rationalize its

employee pyramid and cushion its margins. Management expects the PES business

to post almost double-digit revenue growth in FY2013. MindTree also reiterated

the fact that guidance number of Infosys pointed out that growth in FY2013 is

expected to be back-ended and the first two quarters are expected to be muted.

Overall, we expect the company to record an 11.5% and 13.1% CAGR in USD and

INR revenue, respectively, over FY2012-14E.

On the margin front, MindTree has been doing well since the past few quarters to

rationalize its employee pyramid and cut down on SG&A. These moves by the

company as well as INR depreciation helped MindTree to improve its margins from

11.8% in FY2011 to 15.3% in FY2012. The move of rationalizing the employee

pyramid has helped the company shift its employee pyramid significantly, with

employees having less than three years of experience currently standing at ~36%

of the total employee base as against 30% at the starting of FY2012. Going

ahead, for FY2013, MindTrees margins would face headwinds of wage inflation,

which can be partially absorbed by tailwinds from factors such as improving

utilization level, effort shift offshore and lowering SG&A from current levels. Hence,

we expect the companys EBITDA margin to increase from 15.3% in FY2012 to

16.0% in FY2013. Further, we expect the company to record a 13.8% CAGR in its

EBITDA over FY2012-14E.

At the CMP of `488, the stock is trading at 8.4x FY2014E EPS of `58.5. We valuethe stock at 10x FY2014E EPS, i.e., with a target price of `585, and maintain ourBuy rating on the stock.


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April 16, 201 7

Exhibit 11:Key assumptions

Particulars FY2013 FY2014Revenue growth-USD terms (%) 10.1 12.8

USD-INR rate 49.0 49.0Revenue growth-INR terms (%) 13.4 12.8

EBITDA margin (%) 16.0 15.5

Tax rate (%) 22.0 24.5

EPS growth (%) 0.4 8.4


Exhibit 12:One-year forward PE(x) chart


Exhibit 13:Recommendation summary

Company Reco. CMP Tgt. price Upside FY2014E FY2014E FY2011-14E FY2014E FY2014E(`) (`) (%) EBITDA (%) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)

HCL Tech Buy 487 562 15.5 16.5 11.7 15.8 19.8 20.8

Hexaware Neutral 127 - - 18.3 12.2 53.4 24.1 21.6

Infosys Buy 2,369 2,792 17.8 30.6 13.6 13.4 22.8 20.8

Infotech Entp. Neutral 166 - - 16.8 9.1 12.9 16.6 13.2

KPIT Cummins Buy 76 98 28.9 14.9 7.0 (1.4) 20.0 18.0

Mahindra Satyam Accumulate 79 89 12.9 15.0 9.5 25.3 11.4 13.0

MindTree Buy 488 585 19.8 15.5 8.4 32.9 19.8 17.0Mphasis Accumulate 383 433 13.2 17.9 9.3 1.7 14.1 13.7

NIIT^ Buy 48 61 27.5 16.9 5.2 18.0 11.5 19.0

Persistent Accumulate 325 352 8.3 20.8 8.3 3.8 16.1 13.8

TCS Buy 1,070 1,360 27.1 28.9 15.3 16.1 30.6 29.9

Tech Mahindra Accumulate 711 750 5.5 15.7 8.2 20.8 12.9 18.0

Wipro Accumulate 421 463 10.0 19.3 13.9 11.8 14.1 19.3

Source: Company, Angel Research; Note: Valued on SOTP basis

0

200

400

600

800

1000

1200

1400

1600

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

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Oct-11

Apr-12

(`)

Price 24x 19x 14x 9x 4x


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April 16, 201 8

Profit and loss statement (Indian GAAP, Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ENet sales 1,296 1,509 1,915 2,172 2,450S/w development exp. 798 1,015 1,248 1,409 1,593% of net sales 61.6 67.2 65.2 64.9 65.0

Gross profit 498 495 667 763 857

% of net sales 38.4 32.8 34.8 35.1 35.0

SG&A expenses 252 317 374 415 478

% of net sales 19.5 21.0 19.5 19.1 19.5

EBITDA 246 178 293 349 379% of net sales 18.9 11.8 15.3 16.0 15.5

Depreciation 65 71 70 87 98

EBIT 180 107 223 262 281

Interest expense, net 3 0 - - -

Other income, net 77 24 38 22 37

Profit before tax 255 131 261 284 318

Provision for tax 40 29 43 62 78

% of PBT 15.6 22.1 16.4 22.0 24.5

PAT 215 102 218 221 240Minority interest - - - - -

Share in profit of associates - - - - -

Adj. PAT 215 102 218 221 240EPS (`) 54.4 24.9 53.7 53.9 58.5


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April 16, 201 9

Balance sheet (Indian GAAP, Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ELiabilitiesShare capital 40 40 41 40 40

Application money - - - - -

Reserves and surplus 631 736 917 1,133 1,368

Total shareholders' funds 671 776 957 1,173 1,408Minority interest - - - - -

Secured loans - - 4 4 4

Unsecured loans 3 5 3 4 4

Total debt 3 5 7 8 8Total liabilities 674 781 964 1,181 1,416AssetsGross block - fixed asst. 515 562 671 819 899

Acc. depreciation 253 262 331 418 516

Net block 261 301 339 400 382

Capital WIP 25 3 9 12 15

Total fixed assets 286 303 348 412 398Goodwill 15 - - - -

Investments 127 111 308 350 400

Deferred tax assets, net 21 22 32 28 52

Current assetsSundry debtors 237 283 408 393 443

Cash and bank balance 52 46 60 85 179

Loans and advances 195 251 179 269 343

Total current assets 484 579 647 747 965

Less:- Current liabilitiesCurrent liabilities 211 181 298 274 306

Provisions 49 53 72 83 93

Net current assets 224 345 276 390 567Total assets 674 781 964 1,181 1,416


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April 16, 201 10

Cash flow statement (Indian GAAP, Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014EPre-tax profit from operations 178 106 223 262 281

Depreciation 65 71 70 87 98

Pre tax cash from operations 243 178 293 349 379

Other income/prior period ad 77 24 38 22 37

Net cash from operations 320 202 331 371 416

Tax 40 29 43 62 78

Cash profits 280 173 288 308 338(Inc)/dec in

Current assets (11) (101) (53) (76) (124)

Current liabilities (48) (26) 136 (14) 42

Net trade working capital (59) (127) 83 (89) (82)

Cashflow from operating activities 221 46 371 219 256(Inc)/dec in fixed assets (55) (89) (114) (152) (83)

(Inc)/dec in investments (26) 16 (197) (42) (50)

(Inc)/dec in deferred tax assets (2) (0) (11) 4 (24)

(Inc)/dec in intangibles 131 15 - - -

(Inc)/dec in minority interest (33) - - - -

Cashflow from investing activities 15 (57) (321) (190) (157)Inc/(dec) in debt (136) 2 3 1 -

Inc/(dec) in equity/premium (82) 15 (33) (0) -

Dividends (14) (12) (5) (5) (5)

Cashflow from financing activities (232) 5 (35) (4) (5)Cash generated/(utilised) 4 (6) 14 25 94Cash at start of the year 49 52 46 60 85

Cash at end of the year 52 46 60 85 179


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April 16, 201 11

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014EValuation ratio (x)P/E (on FDEPS) 9.0 19.6 9.1 9.1 8.4

P/CEPS 6.9 11.5 6.9 6.5 5.9

P/BVPS 2.9 2.6 2.1 1.7 1.4

Dividend yield (%) 2.4 2.0 0.8 0.8 0.8

EV/Sales 1.4 1.2 0.8 0.7 0.6

EV/EBITDA 7.4 10.3 5.6 4.5 3.7

EV/Total assets 2.7 2.4 1.7 1.3 1.0

Per share data (`)EPS 54.4 24.9 53.7 53.9 58.5

Cash EPS 70.9 42.3 70.8 75.7 83.0

Dividend 11.8 10.0 4.0 4.0 4.0

Book value 170 190 235 288 346

Dupont analysisTax retention ratio (PAT/PBT) 0.8 0.8 0.8 0.8 0.8

Cost of debt (PBT/EBIT) 1.4 1.2 1.2 1.1 1.1

EBIT margin (EBIT/Sales) 0.1 0.1 0.1 0.1 0.1

Asset turnover ratio (Sales/Assets) 1.9 1.9 2.0 1.8 1.7

Leverage ratio (Assets/Equity) 1.0 1.0 1.0 1.0 1.0

Operating ROE 32.0 13.1 22.8 18.9 17.0

Return ratios (%)RoCE (pre-tax) 26.8 13.7 23.2 22.2 19.8

Angel RoIC 39.7 17.2 38.0 35.7 34.2RoE 32.0 13.1 22.8 18.9 17.0

Turnover ratios (x)Asset turnover (fixed assets) 4.5 5.0 5.5 5.3 6.2

Receivables days 73 63 66 66 66

Payable days 114 71 70 71 70


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April 16 201 12

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement MindTree

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

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