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MindTree Ltd.
Dec-10 results: Hangover of product business removed; Focus moves to revenue growth
Quick Comment: MindTree revenue growth was below
our expectations. It also incurred US$3.7mn of costs
related to its product initiative during the quarter.
Management expects revenue growth to return in both
services and R&D and indicated that it aspires to grow
MindTree faster than the industry in FY12.
Dec-10 Results: Revenue, at US$85mn (3.5% QoQ)
was lower than our expectation. Margins were impacted
by the cost write-off in the products business.
Management now expects margins to improve QoQ in
4Q due to the absence of one-time costs. Net profit at
Rs305mn (+31% QoQ, -43% YoY) was better than
consensus but below our expectations. We believe the
stock will now be driven by revenue growth expectations
over the coming quarters and management commentary
did not appear very exciting for the near term.
Key result highlights: 1) Goodwill from Kyocera
acquisition was written off to the extent of $500k and
overall contingent payment to Kyocera was also
reduced. 2) Clients remain positive and management is
seeing signs of discretionary spending. 3) MindTree
remains optimistic on the demand environment. 4) 4Q
has fewer working days than 3Q but management
expects volume growth in 4Q versus flat volume in 3Q.
5) Next in Wireless (NIW) losses of $1.5mn in this
quarter. 6) Management has been able to negotiate
increase in prices with some customers.
Financials: We forecast revenue and net profit growth
of 13% and 18% YoY over FY11e-13e. The stock trades
at 12x FY12e EPS and could stay range bound until
management is able to deliver on market expectations of
industry-leading growth rates from MindTree.
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