“Mindtree reported another quarter of strong volume growth and margin improvement. Revenue grew by 1.30% sequentially to $105.04mn (against our expectation of $105.54mn) driven by whopping 5.10% of volume growth. Operating margin also improved by 248bps sequentially to 18.74% mainly because of increased operational efficiency. Net profit more than doubled YoY basis to Rs68.90cr against Rs32.00cr in the corresponding period of the previous financial year.”
“MindTree’s focused approach towards IT services brought fruit for the company over the last one year. For the full year of FY12, IT services registered 37.12% growth against flat performance of the Product Engineering business. Moreover, the company’s focus towards the mining of the existing clients through restructured sales force and approach yielded results, as per client revenue increased drastically and the company added one more client of more than $20mn during the quarter. Over the last one year, MindTree Management is bringing in operational efficiency and reducing cost by restructuring the employee pyramid. In the previous quarter, the company able to reduce employee cost sequentially by replacing high cost attritions with low cost fresher intake. Per capita wages also reduced to Rs6.77lakh from Rs7.00lakh in the corresponding period. The company offered 3000 fresher to join in FY13 and want to concentrate more on just in time laterals hiring which we feel would reduce the cost by bottom heavy employee composition. We believe, IT services focused growth strategy and hiring fresher would coincide well for the company and this would eventually percolate to bottom line improvement.”
“We reduce our FY13 topline growth estimates from 17% to 14% to make room for huge uncertainty into the system. We believe, decision delays and cautious client spending, especially in the BFSI space, would affect the performance in the first two quarters and growth is expected revive in the second half of the financial year. But, we maintain our EY13 EPS estimate at Rs60.34 as operational efficiency and favorable currency would benefit margins.”
“MindTree is best placed among the Tier II Indian IT services offshoring companies to sustain and get higher growth due to their diversified vertical and service offerings, renewed focus of the management to get growth in annuity based business streams and revamped vertical focused sales initiatives. Margin levers are also very high as the company is at the end of transforming its business and fruits have already started coming in terms of better revenue growth. But, the recent rally in the stock prices left little room for short term upside and we believe valuation matrix re-rating would take some more time. We are recommending ‘BUY ON DIPS’ with target price of Rs600 after discounting FY13 EPS by 10x,” says Way2Wealth research report.
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