Apply for MindTree IPO; strong growth momentum: SKP

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MindTree Consulting, an international IT and R&D Services Company that delivers business and technology solutions through global software development, is open for subscription with an initial public offering, IPO of 5,593,300 equity shares of Rs 10 each at a price band of Rs 365 to Rs 425 per equity share through the 100% book building process.

The issue will constitute 15% of the post-Issue capital of the company and the net issue will constitute 13.25% of the post-Issue capital of the company.

The SKP Research report on MindTree IPO:

Investment Highlights

• MindTree Consulting is an IT company that delivers business and technology solutions through global software development. The company is organised into two divisions - Information Technology Services and Research and Development services. For Fiscal 2006, IT services contributed 76.50% of its total revenues and R&D services contributed 23.50% of its total revenues.
• IT Services comprise IT strategic consulting, application development, data warehousing and business intelligence, application maintenance, package implementation and application product engineering services to its customers. The company's IT services business unit offers such services with a strong focus on certain industries including banking, financial services and insurance, manufacturing, travel and transportation. R&D services are organised into two divisions- engineering and research.
• For fiscal 2006 company's top customers included three Fortune 10 companies and six additional Fortune 100 companies such as American International Group and United Technologies Corporation. In addition company's customers also include companies such as Avis Budget Group, LSI Logic, Symantec, Unilever and Volvo.
• Company's hybrid delivery model, OneShore, represents its method for global development that achieves a balance of quality, cost savings and localisation. OneShore represents a fusion of global resources that is designed to enable the company to pursue same strategy and vision for its customers at a consistently high service levels. The customer centric approach inherent in the OneShore model enables the company to achieve high standards of quality in its delivery organisation. This is demonstrated by its achieving CMMI Level 5 quality standards within five years of its inception.
• The company acquired the software divisions of ASAP and its wholly owned subsidiary and Linc Software Services. These acquisitions enabled the company to augment its SAP and iSeries capabilities. The company continues to look for strategic acquisition opportunities that have complementary capabilities and help the company expand into new geographies.

Concerns

The company's revenues are highly dependent on a limited number of clients. The loss of any one of its major clients, a decrease in the volume of outsourcing work to the company or a decrease in the realisation at which the company offers services may adversely impact its revenues and profitability. Its revenues are highly dependent on clients located in the United States and Europe. Economic slowdowns and other factors that affect the economic health of the United States or Europe may affect its business. The company's attrition rates are at 13.6% and 12% in FY05 and FY06.

Recommendation

With bluechip clientele, strong Research & Development capabilities, excellent global delivery model, experienced and proven management team, MindTree Consulting Ltd. is poised to go on a high growth trajectory. The company's net sales grew at a CAGR of 85.49% during FY04-06 and PAT grew at a CAGR of 326.93% during FY04-06.

Considering the strong growth momentum, we recommend subscription to the issue.