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We recently met the management of MindTree at corporate office
in Bangalore. Following are the key points of discussion.
Clients’ budgets are flat to marginally positive – Based on
feedback by top 30 clients, the indications are flat to marginally
positive growth in budgets for the next year.
IT services to lead, Prod. Engg. Services (PES) to be muted –
According to the management, IT services growth should maintain
the high growth trajectory and PES is likely to be muted.
Nevertheless overall growth rate is expected to be higher than
NASSCOM’s initial estimates of 11-14% for FY13.
Pricing is expected to be stable – There has been pricing increase
of~5% in FY12 due to increase in onsite pricing in Q1 and Q2 and
offshore pricing in Q2 and Q3. Even though current macro
environment is weak, the pricing is expected to be stable going
ahead.
Europe to be slower than US – Europe has grown significantly
~72%YoY in 9MFY12. However, the management expects a slower
growth in FY13 for Europe compared to US.
3,000 campus offers for FY13- The joining ratio is expected to be 75%
of the campus offers. The headcount at the end of Q3FY12 is 10,934.
Utilisation has dipped 300bpsQoQ to 68.3% but the highest level in
last 5-6 years was 72.5% in Q1FY12.
Employee pyramid is the primary margin lever – According to the
management, the main lever for improving the operating margin is
change in the employee age pyramid.
No client attrition to Happiest Minds – There has been no client
attrition to Ashok Soota’s venture Happiest Minds. However, a few
senior management have exited to join the rival firm in past but the
situation is stable now.
Outlook and Recommendation – MindTree has been able to deliver
good growth in IT services and even after weakness in Product Engg.
Services the overall growth rate is higher than the industry. Q3FY12
margin of 17.3% was at higher INR/USD of 50.1 and Q4 margin is
likely to dip significantly due to rupee appreciation. We have
concerns on improvement in the operating margin and sustainability
of the same. Maintain ‘ACCUMULATE’ recommendation on the stock
with a TP of Rs520 based on 10x PER multiple on 18-months forward
earnings.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
We recently met the management of MindTree at corporate office
in Bangalore. Following are the key points of discussion.
Clients’ budgets are flat to marginally positive – Based on
feedback by top 30 clients, the indications are flat to marginally
positive growth in budgets for the next year.
IT services to lead, Prod. Engg. Services (PES) to be muted –
According to the management, IT services growth should maintain
the high growth trajectory and PES is likely to be muted.
Nevertheless overall growth rate is expected to be higher than
NASSCOM’s initial estimates of 11-14% for FY13.
Pricing is expected to be stable – There has been pricing increase
of~5% in FY12 due to increase in onsite pricing in Q1 and Q2 and
offshore pricing in Q2 and Q3. Even though current macro
environment is weak, the pricing is expected to be stable going
ahead.
Europe to be slower than US – Europe has grown significantly
~72%YoY in 9MFY12. However, the management expects a slower
growth in FY13 for Europe compared to US.
3,000 campus offers for FY13- The joining ratio is expected to be 75%
of the campus offers. The headcount at the end of Q3FY12 is 10,934.
Utilisation has dipped 300bpsQoQ to 68.3% but the highest level in
last 5-6 years was 72.5% in Q1FY12.
Employee pyramid is the primary margin lever – According to the
management, the main lever for improving the operating margin is
change in the employee age pyramid.
No client attrition to Happiest Minds – There has been no client
attrition to Ashok Soota’s venture Happiest Minds. However, a few
senior management have exited to join the rival firm in past but the
situation is stable now.
Outlook and Recommendation – MindTree has been able to deliver
good growth in IT services and even after weakness in Product Engg.
Services the overall growth rate is higher than the industry. Q3FY12
margin of 17.3% was at higher INR/USD of 50.1 and Q4 margin is
likely to dip significantly due to rupee appreciation. We have
concerns on improvement in the operating margin and sustainability
of the same. Maintain ‘ACCUMULATE’ recommendation on the stock
with a TP of Rs520 based on 10x PER multiple on 18-months forward
earnings.
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