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India Equity Research Reports, IPO and Stock News
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On the mend?
§ 1Q12 results comfortably above BNPP and Street on all counts
§ IT services stronger than expected, product engg. recovering
§ But attrition needs to subside, receivables need a check
§ Watch for sustainable growth, margin recovery. Ests under review
Solid 1QFY12
MindTree reported a solid 1QFY12, as we
were expecting (see our preview note,
Taking stock of the situation, dated 7 July
2011). Revenue, EBIT margin and EPS
were comfortably above our own and
Bloomberg consensus estimates, and
management sounded upbeat on the
business. From our previous discussions
with management, the company remains
confident of beating FY12 industry
revenue growth (16-18%, as per
Nasscom) despite a roughly 4% revenue
hit from the loss of the Kyocera (6971 JP;
Not rated) business. Moreover, it is
running a stringent margin programme and expects to lift the EBITDA
margin back to 17-18% in the next 5-6 quarters from 11% currently,
which, if achieved, would be well above our own and Street projections.
Strong IT services, engineering business picking up
MindTree’s 7.3% q-q USD revenue growth (BNPP: 5.2%) was driven by a
10.6% expansion in IT services (64% of revenue), led by the US (+7.8%
q-q) and Europe (+11.4% q-q). Product engineering services (36% of
revenue) grew a modest 1.9% q-q, but excluding the Kyocera business it
expanded 4.8%, which is creditable given the tepid -2% to +3% q-q
growth rate seen through FY11. Management commented that business
from a European client and three recent large infrastructure management
deals (together USD100m in size over five years) ramped up during the
quarter. Infrastructure services (10% of revenue) grew 24% q-q. The two
negatives were: 1) Persistent high attrition of over 25% resulted in a net
employee addition of just 30 in 1Q12. Management expects to hire a
gross of 4,000 this year, but would need to lower the turnover to sustain
growth, in our view. 2) A jump in trade receivables (+INR553m) almost
wiped out the 1Q12 operating cash flows.
Interesting name to watch
MindTree shares are down 37% YTD (Sensex down 10%) after a string
of poor results, departure of ex-Chairman Ashok Soota and the overhang
from the abandonment of the wireless products venture. The stock now
trades at an inexpensive 8.8x FY13E P/E (BNPP) and, in our view, is an
interesting name to watch. Our estimates are under review to incorporate
the 1Q results.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
On the mend?
§ 1Q12 results comfortably above BNPP and Street on all counts
§ IT services stronger than expected, product engg. recovering
§ But attrition needs to subside, receivables need a check
§ Watch for sustainable growth, margin recovery. Ests under review
Solid 1QFY12
MindTree reported a solid 1QFY12, as we
were expecting (see our preview note,
Taking stock of the situation, dated 7 July
2011). Revenue, EBIT margin and EPS
were comfortably above our own and
Bloomberg consensus estimates, and
management sounded upbeat on the
business. From our previous discussions
with management, the company remains
confident of beating FY12 industry
revenue growth (16-18%, as per
Nasscom) despite a roughly 4% revenue
hit from the loss of the Kyocera (6971 JP;
Not rated) business. Moreover, it is
running a stringent margin programme and expects to lift the EBITDA
margin back to 17-18% in the next 5-6 quarters from 11% currently,
which, if achieved, would be well above our own and Street projections.
Strong IT services, engineering business picking up
MindTree’s 7.3% q-q USD revenue growth (BNPP: 5.2%) was driven by a
10.6% expansion in IT services (64% of revenue), led by the US (+7.8%
q-q) and Europe (+11.4% q-q). Product engineering services (36% of
revenue) grew a modest 1.9% q-q, but excluding the Kyocera business it
expanded 4.8%, which is creditable given the tepid -2% to +3% q-q
growth rate seen through FY11. Management commented that business
from a European client and three recent large infrastructure management
deals (together USD100m in size over five years) ramped up during the
quarter. Infrastructure services (10% of revenue) grew 24% q-q. The two
negatives were: 1) Persistent high attrition of over 25% resulted in a net
employee addition of just 30 in 1Q12. Management expects to hire a
gross of 4,000 this year, but would need to lower the turnover to sustain
growth, in our view. 2) A jump in trade receivables (+INR553m) almost
wiped out the 1Q12 operating cash flows.
Interesting name to watch
MindTree shares are down 37% YTD (Sensex down 10%) after a string
of poor results, departure of ex-Chairman Ashok Soota and the overhang
from the abandonment of the wireless products venture. The stock now
trades at an inexpensive 8.8x FY13E P/E (BNPP) and, in our view, is an
interesting name to watch. Our estimates are under review to incorporate
the 1Q results.
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