Mindtree (Q3 FY13)

India Infoline News Service | Mumbai |

The key business of IT services continued to drive the performance, growing 4.8% qoq in dollar terms. On the flip side, the PES business was impacted due furloughs and slower spending resulting in 2.5% qoq de-growth in dollar revenues.

CMP Rs756, Target Rs860, Upside 13.8%

  • Mindtree delivered an in-line top-line performance with dollar revenues growing 2.4% qoq to US$110mn. Lower billing days, furloughs in Product engineering segment (PES) led to meagre volume de-growth of 0.7% supported by 3.4% qoq growth in blended dollar pricing . In rupee terms, revenues de-grew 1% qoq to Rs5.9bn.
  • The key business of IT services continued to drive the performance, growing 4.8% qoq in dollar terms. On the flip side, the PES business was impacted due furloughs and slower spending resulting in 2.5% qoq de-growth in dollar revenues. Amongst the key verticals, growth was driven by Travel/transportation (+8.4% qoq) and manufacturing/Retail (+3% qoq). Within services, the application development (3.6% qoq), application management (+3.4% qoq), IMS (+4.8% qoq) and package implementation (+56% qoq) drove the growth with consulting (-9% qoq) being the key laggard. Europe (+3.6% qoq), RoW(+18.7% qoq) were the key out-performers from the geography perspective. Client performance was stable with Top/Top-10 clients growing higher than company average at 3.7%/3.1% sequentially.
  • The OPM performance for Mindtree was mainly impacted due to lower realized US$-INR rate of Rs53.7/US$-a 3.4% appreciation qoq. This and increase in SG&A expenses more than offset the tailwind of better realisation and improved utilization resulting in the OPM correcting 170bps sequentially (higher than our expectation of 110bps). The higher than expected correction in margin was recouped by the strong forex gains (Rs142mn versus expected Rs30mn) resulting in higher than estimated PAT of Rs988mn.  While the employee additions were tepid, key metric of attrition improved from 16.3% last quarter to 15.1% now. For FY14, management has guided for a fresher addition of ~2000 employees.
  • Management commentary on demand environment indicates a stronger FY14 post a weak FY13. Pick up in deal pipeline in IT services, large client interests towards discretionary spending and improved momentum in PES (a major underperformer in FY13) were the key reasons for better outlook. Positive management commentary, improved deal pipeline, decent hiring guidance and headroom in margin levers of employee pyramid and SG&A leverage keep us positive on the company. We raise our estimates and incorporate FY15 financials into our model. Maintain BUY with increased 9-month TP of Rs860.
Result table
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Net sales 5,901 5,963 (1.0) 5,197 13.5
Operating profit 1,204 1,319 (8.7) 897 34.2
OPM (%) 20.40 22.12 (172) bps 17.26 314 bps
Depreciation 151 159 (5.0) 173 (12.7)
Interest 2 4 (50.0) 1 -
Other income 212 (341) (162.2) 11 1,827.3
PBT 1,263 815 55.0 734 72.1
Tax 275 93 195.7 128 114.8
Effective tax rate (%) 21.8 11.4 - 17.4 -
Adjusted PAT 988 722 36.8 606 63.0
Adj. PAT margin (%) 16.7 12.1 464 bps 11.7 508 bps
Reported PAT 988 722 36.8 606 63.0
EPS (Rs) 24.2 17.7 36.8 15.0 61.4
 Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues (Rs m) 15,531 18,930 20,044 21,508
yoy growth (%) 30.7 21.9 5.9 7.3
Operating profit 2,704 3,484 3,433 3,662
OPM (%) 17.4 18.4 17.1 17.0
Reported PAT (Rs m) 1,630 2,339 2,350 2,441
yoy growth (%) 16.6 43.6 0.4 3.9
         
EPS (Rs) 53.0 84.8 93.0 95.1
P/E (x) 14.6 9.1 8.3 8.1
Price/Book (x) 3.3 2.5 2.0 1.6
EV/EBITDA (x) 10.8 6.1 5.4 4.5
RoE (%) 25.2 31.4 26.7 22.0
RoCE(%) 29.4 38.8 35.0 29.4
Source: Company, India Infoline Research
BSE 564.85 0.30 (0.05%)
NSE 565.60 1.40 (0.25%)

***Note: This is a NSE Chart

 

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