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RECO: ACCUMULATE TP : Rs450
Investment Rationale
§ After the unsuccessful foray in the handset manufacturing business, we see MindTree’s operating performance
surprising positively driven by the focus on the core IT services business( co laying emphasis on client mining
rather than the new client hunting strategy of the past) which should also aid improvement in margins ( albeit
after the sharp drop over FY09-11)
§ Unlike in the past, MindTree’s account managers are incentivised to drive more client mining. Targets are in
place to ramp up 2 of the US$ 10 mn+ client accounts to US$ 50 mn+ p.a
§ Margins to improve by ~300 bps over FY11-14E led by (1) growth led leverage, (2) broadening of the employee
pyramid and (3) utlization of high costs resources that came in through the Kyocera acquisition
Valuations
§ At CMP of Rs 382, MIndtree trades at ~8.5x/6.5x FY13/14E earnings of ~Rs 44.9/58.7. We see stock upsides
driven by improvement in operating performance ahead
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