Q2 FY14 dollar revenues of US$124mn (+5.4% qoq) came in materially ahead of estimates. This growth was largely volume with constant currency revenues growing 5.7% qoq. The blended realisation on the other hand corrected 1% qoq. On the rupee front, the reported revenues were up 18.8% to Rs7.7bn.
Amongst the key businesses, the growth was well spread across IT services and PE Services (now Hi-Tech vertical). The growth was broad based across verticals with Manufacturing (+8.7% qoq) and Travel & Transportation (+7.7% qoq ) leading the growth. The Hi Tech vertical has shown second quarter of sustained traction with revenues growing 4% qoq in dollar terms.
Within service lines, IMS showed a robust growth of 20.1% qoq followed by Application maintainence (+6.3% qoq).Package implementation on the other hand showed sharp decline of 18% qoq albeit on a smaller base. Amongst geographies, the growth was led by Europe (+6.8% qoq) on the back of robust ramp-up of deals won in the previous quarters.
Client mining continued to be a key highlight of Mindree’s performance. The Top client and Top 6-10 clients have shown sustained growth over the past four quarters registering a CQGR of 3% and 8.8% respectively. Over the same period, revenue per client has witnessed a CQGR of 6.7%. The company also indicated that the pruning of the tail accounts was largely over.
The Operating profitability too was better than expected with OPM expanding 240bps against our expectation of 120 expansion. This was despite the correction in utilisation, lower pricing and higher onsite efforts. On the whole, rupee depreciation ,(+450bps impact), SG&A leverage (+90bps) and absence of visa costs (+100bps) more than offset the headwinds from wage hikes and hiring (-160bps) and higher onsite mix (-60bps). Following the material beat on the revenues as well as the OPM, the PAT of Rs1.29bn was 20% ahead of estimates. Strong hiring led to employee base expanding 5.7% qoq and utilization correcting 3.7% qoq to 65.9%
Management’s qualitative guidance and commentary remained positive with an expectation of a better growth in FY14 than FY13. Improvement in performance & outlook for PE services, continued traction/visibility in IT services space (driven by IMS) and overall improvement in spending behaviour of its client portfolio were the key reasons for the constructive commentary. This is also evidenced in the deal signings of US$142mn in this quarter (v/s US$95 last quarter). On the margin front, sizeable headroom on the utilization coupled improving revenue traction should help improve margin over FY15. We expect a 14%/19% dollar revenue and earnings CAGR over FY13-15E. Maintain BUY with an increased 9-month TP of Rs1,480.
|(Rs mn)||Q2 FY14||Q1 FY14||% qoq||Q2 FY13||% yoy|
|OPM (%)||20.76||18.39||238 bps||22.12||(136) bps|
|Effective tax rate (%)||21.9||22.4||-||11.4||-|
|Adj. PAT margin (%)||16.7||20.9||(418) bps||12.1||462 bps|
|Y/e 31 Mar (Rs m)||FY12||FY13||FY14E||FY15E|
|Revenues (Rs m)||19,152||23,618||29,901||34,307|
|yoy growth (%)||26.9||23.3||26.6||14.7|
|Reported PAT (Rs m)||2,185||3,389||4,724||5,330|
|yoy growth (%)||115.1||55.1||39.4||12.8|
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