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• MindTree is a mid-tier Indian IT services company providing offshore-based services to global organizations in BFSI,
manufacturing, transportation and hi-tech industries. It is one of the youngest companies to cross the US$250m mark
and has a complete suite of technology services, including IT services, offshore product development and R&D
services. The company is one of the preferred Tier2 IT services vendors.
• IT services business to show traction: MindTree’s core IT services business is highly levered to discretionary IT
spending and is expected to show strong revenue traction on the back of improving macroeconomic environment. This
segment reported volume-led revenue growth of ~8% qoq in Q3FY11, driven by growth in the BFSI and manufacturing
verticals. For 9MFY11, this business segment has grown 30% yoy in USD terms – ahead of other two segments.
• OPD and R&D services: The OPD business USD revenue has grown ~9% yoy in 9M FY11 and is expected to show
healthy growth in FY12. R&D services USD revenues have grown ~5% yoy in 9M FY11 organically. Including Kyocera
acquisition, USD revenues from R&D services have shown 28% yoy growth. Management expects this segment to
remain slightly constrained in the coming few quarters. The company, however, has won a deal with a Japanese
semiconductor company in the R&D space, which should boost growth in the long term.
• Chairman’s resignation not a business concern: The management commented that Mr. Soota had resigned for
personal reasons; but coming just two months before his expected transition from executive chairman to nonexecutive
chairman role, the decision came as a surprise to the management. At the time of resignation, Ashok Soota
had only the strategy function reporting to him. The other four business functions (sales, delivery, finance and HR)
were reporting to the CEO, Krishnakumar Natarajan. The transition of responsibilities (reporting lines) had been
happening over past few years. Initially, only sales and delivery reported to Krishnakumar and the other three were
reporting to Soota. In 2007-08, HR and finance started reporting to the CEO. Because of this gradual transition, the
management said the resignation would not affect the business at large.
• Margins to rebound in FY12: MindTree’s operating margins have declined from 18%+ levels to ~11% in the past three
quarters, while services margins were ~15%. With product business closure costs behind, the management expects a
rebound in margins in FY12.
• Hedges: As of December 2010, the company had outstanding hedges of US$157m at a weighted average rate of Rs45/US$.
• Our view: Levered to discretionary spending, MindTree’s USD revenues should expand by ~24% CAGR over FY11-
13E. We see value in the MindTree’s services business, which is currently trading at ~9x FY12E EPS. We have an
Outperformer rating on the stock with a 12-month price target of Rs650, based on 14x FY12E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• MindTree is a mid-tier Indian IT services company providing offshore-based services to global organizations in BFSI,
manufacturing, transportation and hi-tech industries. It is one of the youngest companies to cross the US$250m mark
and has a complete suite of technology services, including IT services, offshore product development and R&D
services. The company is one of the preferred Tier2 IT services vendors.
• IT services business to show traction: MindTree’s core IT services business is highly levered to discretionary IT
spending and is expected to show strong revenue traction on the back of improving macroeconomic environment. This
segment reported volume-led revenue growth of ~8% qoq in Q3FY11, driven by growth in the BFSI and manufacturing
verticals. For 9MFY11, this business segment has grown 30% yoy in USD terms – ahead of other two segments.
• OPD and R&D services: The OPD business USD revenue has grown ~9% yoy in 9M FY11 and is expected to show
healthy growth in FY12. R&D services USD revenues have grown ~5% yoy in 9M FY11 organically. Including Kyocera
acquisition, USD revenues from R&D services have shown 28% yoy growth. Management expects this segment to
remain slightly constrained in the coming few quarters. The company, however, has won a deal with a Japanese
semiconductor company in the R&D space, which should boost growth in the long term.
• Chairman’s resignation not a business concern: The management commented that Mr. Soota had resigned for
personal reasons; but coming just two months before his expected transition from executive chairman to nonexecutive
chairman role, the decision came as a surprise to the management. At the time of resignation, Ashok Soota
had only the strategy function reporting to him. The other four business functions (sales, delivery, finance and HR)
were reporting to the CEO, Krishnakumar Natarajan. The transition of responsibilities (reporting lines) had been
happening over past few years. Initially, only sales and delivery reported to Krishnakumar and the other three were
reporting to Soota. In 2007-08, HR and finance started reporting to the CEO. Because of this gradual transition, the
management said the resignation would not affect the business at large.
• Margins to rebound in FY12: MindTree’s operating margins have declined from 18%+ levels to ~11% in the past three
quarters, while services margins were ~15%. With product business closure costs behind, the management expects a
rebound in margins in FY12.
• Hedges: As of December 2010, the company had outstanding hedges of US$157m at a weighted average rate of Rs45/US$.
• Our view: Levered to discretionary spending, MindTree’s USD revenues should expand by ~24% CAGR over FY11-
13E. We see value in the MindTree’s services business, which is currently trading at ~9x FY12E EPS. We have an
Outperformer rating on the stock with a 12-month price target of Rs650, based on 14x FY12E EPS.
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