Subscribe to MindTree IPO: Niche Brokerage

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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 Niche Brokerage report on MindTree Consulting IPO:

Snapshot

MindTree Consulting, promoted by a group of 10 professionals (led by Ashok Soota, Ex-Vice Chairman of Wipro), is an international technology company that delivers business and technology solutions through global software development. MindTree currently has three development centers: one each in Bangalore, Chennai, and New Jersey in the US. It is planning to develop a new facility in Bhubaneshwar, India, which is to be completed in FY2008. In the first 6 years of its operations, MindTree has achieved the milestone of USD 100 million in revenue.

Investment Rationale

Experienced Management Team

MindTree has a management team of professionals with an average of 20 years' industry experience with different areas of specialisation within the IT industry. The co-founders are from leading IT consulting companies Wipro, Cambridge Technology Partners and Lucent Technologies.

Strong Global Presence

As on December'2006, MindTree had 18 sales offices across the globe with a sales force of 46 and headcount of 4006. There were 153 active clients. Of these, Top 5 clients contribute 38% of FY06 revenues with top customer contributing nearly 14% of revenue. The US region accounted for 63% of the revenue share, Europe 23% and Asia Pacific Countries 14%.

Comprehensive range of it services

MindTree has two business divisions: Information Technologies Services (IT Services) contributing 76%, and Research and Development Services (R&D Services) 24% of the total revenue for the 9 months ended December 2006. IT Services has strong focus on manufacturing (30%), travel and transportation (23%), Banking financial services and insurance (BFSI) (17%) and hi-technology (19%).

Recent Acquisitions

The company has made two acquisitions in software division one of them is ASAP Solutions and its subsidiary Arachno Solutions providing SAP implementation & maintenance in US and Asia. The other company acquired is Linc Software Services in June 2005 in the business of application development and maintenance, ERP product support and web development.

Valuation

We believe MindTree has great potential to scale up its operations from hereon, given a very experienced and tested management, satisfied and motivated employees, presence in areas other than the traditional line of IT services and several levers to raise operating margins to long-term view. Thus, at the price band of Rs 365 - Rs 425, with the annualised EPS for the nine months ended December 2006 works out to Rs 23.4 it is available at a PEx of 15.5x - 18x on FY07E which is at a good discount to other Midcap listed Software companies trading at PE 25x-30x. Hence, we advise to "Subscribe".