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Mindtree (MTCL)
Technology
Excellent quarter. 2QFY12 performance was impressive on several parameters: broadbased
revenue growth of 9.5% qoq, EBITDA margin expansion of 180 bps qoq despite
limited benefit from Rupee depreciation and net income of Rs543 mn (our expectation
of Rs382 mn). Performance is all the more creditable as it comes on the back of a
strong 1QFY12. We attribute the turnaround at MindTree to focus on basics and
completion of ramp-down from drag accounts in R&D. Growth in our view will be
backed by margin expansion. Upgrade our 2013E EPS estimates by 22% and TP to
Rs460 (Rs375 earlier). ADD.
Broad-based revenue growth powers 2QFY12 performance; revenues exceed US$100 mn/quarter
MindTree reported 9.5% qoq growth to US$101.3 mn, 2.9% ahead of our estimate. Revenue
growth was broad-based; product engineering services grew at a healthy 8.3% qoq contributed
by incremental IP revenues of US$0.6 mn. IT services revenue growth was strong at 10.2% qoq;
growth was broad-based across verticals and service offerings. Volume growth was 6.1% qoq,
while pricing gain was 3.5%—part of the pricing gain can be attributed to higher IP revenues.
MTCL added 1,000 employees during the quarter, strong in our view and indicates confidence on
volume pipeline. MTCL reported net income of Rs543 mn, 42% ahead of our estimate.
Margin increase is completely operational; little benefit from Rupee depreciation
MTCL’s average Re/US$ rate in 2QFY12 was 45.1, a marginal depreciation of 1%. MTCL converts
foreign currency revenues into Rupees each month at the beginning-of-the-month Re/US$ rate.
Margin performance is all the more creditable noting (1) limited benefits of Rupee depreciation
and (2) company absorbed onsite and offshore wage increase equivalent to 40% of wage bill.
Margin expansion includes one-off benefit from incremental IP revenues of US$0.6 mn in the
quarter. We believe that margin has further scope for expansion led by (1) SG&A leverage, (2)
further operational efficiencies from step-up in fresher hiring and utilization rates, and (3) Rupee
depreciation. We forecast EBITDA margin of 13% in FY2012E and 13.7% in FY2013E.
Buy into a sustainable growth story even though it would be volatile on quarterly basis
MindTree has all the building blocks for growth and scale though it lost its way through
unnecessary diversification. The company is reaping the benefits of ramp-up in deal wins at the
beginning of the year and improved account mining (number of US$5 mn clients increases by 3).
We forecast revenue growth of 24% yoy for FY2012E and 16.5% for FY2013E.
We raise our EPS estimate by 19.5/22% for FY2012E/13E to Rs42/45.4. We maintain our ADD
rating with a TP of Rs460 (Rs375 earlier) valuing the company at 10X FY2013E earnings. We also
note that our EPS estimate for FY2013E is based on a Re/US$ rate of Rs45.6. A 1% change in
Rupee impacts MindTree’s EPS by 5.3% and EBITDA margin by 40 bps.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mindtree (MTCL)
Technology
Excellent quarter. 2QFY12 performance was impressive on several parameters: broadbased
revenue growth of 9.5% qoq, EBITDA margin expansion of 180 bps qoq despite
limited benefit from Rupee depreciation and net income of Rs543 mn (our expectation
of Rs382 mn). Performance is all the more creditable as it comes on the back of a
strong 1QFY12. We attribute the turnaround at MindTree to focus on basics and
completion of ramp-down from drag accounts in R&D. Growth in our view will be
backed by margin expansion. Upgrade our 2013E EPS estimates by 22% and TP to
Rs460 (Rs375 earlier). ADD.
Broad-based revenue growth powers 2QFY12 performance; revenues exceed US$100 mn/quarter
MindTree reported 9.5% qoq growth to US$101.3 mn, 2.9% ahead of our estimate. Revenue
growth was broad-based; product engineering services grew at a healthy 8.3% qoq contributed
by incremental IP revenues of US$0.6 mn. IT services revenue growth was strong at 10.2% qoq;
growth was broad-based across verticals and service offerings. Volume growth was 6.1% qoq,
while pricing gain was 3.5%—part of the pricing gain can be attributed to higher IP revenues.
MTCL added 1,000 employees during the quarter, strong in our view and indicates confidence on
volume pipeline. MTCL reported net income of Rs543 mn, 42% ahead of our estimate.
Margin increase is completely operational; little benefit from Rupee depreciation
MTCL’s average Re/US$ rate in 2QFY12 was 45.1, a marginal depreciation of 1%. MTCL converts
foreign currency revenues into Rupees each month at the beginning-of-the-month Re/US$ rate.
Margin performance is all the more creditable noting (1) limited benefits of Rupee depreciation
and (2) company absorbed onsite and offshore wage increase equivalent to 40% of wage bill.
Margin expansion includes one-off benefit from incremental IP revenues of US$0.6 mn in the
quarter. We believe that margin has further scope for expansion led by (1) SG&A leverage, (2)
further operational efficiencies from step-up in fresher hiring and utilization rates, and (3) Rupee
depreciation. We forecast EBITDA margin of 13% in FY2012E and 13.7% in FY2013E.
Buy into a sustainable growth story even though it would be volatile on quarterly basis
MindTree has all the building blocks for growth and scale though it lost its way through
unnecessary diversification. The company is reaping the benefits of ramp-up in deal wins at the
beginning of the year and improved account mining (number of US$5 mn clients increases by 3).
We forecast revenue growth of 24% yoy for FY2012E and 16.5% for FY2013E.
We raise our EPS estimate by 19.5/22% for FY2012E/13E to Rs42/45.4. We maintain our ADD
rating with a TP of Rs460 (Rs375 earlier) valuing the company at 10X FY2013E earnings. We also
note that our EPS estimate for FY2013E is based on a Re/US$ rate of Rs45.6. A 1% change in
Rupee impacts MindTree’s EPS by 5.3% and EBITDA margin by 40 bps.
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