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MindTree
Flat volume growth, one-offs save the day; maintain Sell
MindTree’s 3QFY11 revenue grew 0.1% qoq (rupee terms) and
3.5% qoq (US dollars). Volume growth was flat, and pricing
growth was 3.7% qoq due to license fee of US$.6m. Net profit
rose 30.7% qoq (albeit down 42.5% yoy) led by one-off gains.
Key points. Geographically, Europe was up 11.7% and America
down 1%. Attrition stood at 24.2% in 3QFY11 vs. 21.9% in
2QFY11. Utilization including trainees was 69.3%, down 70bps on
qoq basis. The company saw gross employee addition of 1,021 in
the quarter; net addition was at 87. For FY12, it targets hiring 2,000
freshers. Its application development business was down 6.2% qoq.
Business from next-in-wireless (NIW) is expected to decline.
One-off gains. MindTree’s wireless business was amalgamated
with the parent, effective 1 Apr ’11, thereby enabling the company
to absorb the US$1.5m loss in its wireless business and hence gain
tax benefits. Forex gains stood at `79m. Restructuring cost of the
handset business was US$3.7m vs. company and our estimate of
US$14m.
Change in estimates. We tweak our FY11e, FY12e and FY13e
adj EPS by -2.7%, 1.6% and 1.8% to account for one-off items; our
new adj EPS estimates are `32.2, `41.2 and `49.3 respectively.
Valuation and risks. We retain our target price of `490, on target
PE of 12x FY12e adjusted EPS of `41.2, which is at 35% discount
to average large-cap FY12e target multiple and in line with mid-cap
peers’. Risks: rise in billing rates; higher-than-expected margin.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� �
MindTree
Flat volume growth, one-offs save the day; maintain Sell
MindTree’s 3QFY11 revenue grew 0.1% qoq (rupee terms) and
3.5% qoq (US dollars). Volume growth was flat, and pricing
growth was 3.7% qoq due to license fee of US$.6m. Net profit
rose 30.7% qoq (albeit down 42.5% yoy) led by one-off gains.
Key points. Geographically, Europe was up 11.7% and America
down 1%. Attrition stood at 24.2% in 3QFY11 vs. 21.9% in
2QFY11. Utilization including trainees was 69.3%, down 70bps on
qoq basis. The company saw gross employee addition of 1,021 in
the quarter; net addition was at 87. For FY12, it targets hiring 2,000
freshers. Its application development business was down 6.2% qoq.
Business from next-in-wireless (NIW) is expected to decline.
One-off gains. MindTree’s wireless business was amalgamated
with the parent, effective 1 Apr ’11, thereby enabling the company
to absorb the US$1.5m loss in its wireless business and hence gain
tax benefits. Forex gains stood at `79m. Restructuring cost of the
handset business was US$3.7m vs. company and our estimate of
US$14m.
Change in estimates. We tweak our FY11e, FY12e and FY13e
adj EPS by -2.7%, 1.6% and 1.8% to account for one-off items; our
new adj EPS estimates are `32.2, `41.2 and `49.3 respectively.
Valuation and risks. We retain our target price of `490, on target
PE of 12x FY12e adjusted EPS of `41.2, which is at 35% discount
to average large-cap FY12e target multiple and in line with mid-cap
peers’. Risks: rise in billing rates; higher-than-expected margin.
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