Accumulate MindTree; target of Rs 580: Emkay

“MindTree’s March’12 qtr performance continues to be along our investment thesis. While revenues at ~US$ 105 mn (+1.3% QoQ, a strong 5% QoQ volume growth) were a tad higher than estimates, margins improved by ~140 bps sequentially to 18.7%, highest since March’10 levels ( worth highlighting that the company has continued to deliver an improvement in margins through FY12). While IT Services grew by ~1.7% QoQ rounding up a stellar FY12 (IT Svcs revenues were up by ~37% YoY in FY12), PES revenues were nearly flat QoQ. Growth continued to be led by top clients with top 5/10 clients growing by ~3.6%/5% QoQ with improvement in client buckets as no of US$ 5 mn/20 mn+ clients increased by 1 each to 17/4 during the quarter. Net headcount addition was a tad muted after strong addition through the past 2 quarters with attrition declining further to 18.2% on LTM basis (<16% on qtrly annualized basis).”

“MindTree’s ‘Back to Basics’ approach has led the revival in financial performance for the company in FY12 wherein the company has not only seen a decent 22% US$ revenue growth but also an improvement in margins through the year. Although company management does highlight risks from an uncertain demand environment and currency volatility, it remains confident of higher than industry revenue growth coupled with improvement in margins through FY13. We note that broadening of employee pyramid along with pick up in utilization of resources in the PES segment remain medium term margin tailwinds for the company (company hired ~1,800 freshers in FY12 and intends to hire ~3,000 freshers in FY13).”

“Our FY13/14 US$ rev estimates remain largely unchanged however we now build in EBITDA margins at 16.7%/15.8% (V/s 15.2/14.7% earlier as MindTree’s improvement in margins continues to deliver above expectations) driving a 15%/8% raise in FY13/14E earnings to Rs 57.9/63.4 respectively. Valuations are attractive at <9x/8x FY13/14 P/E given upside risks to estimates. MindTree along with Hexaware remain our top bets in the mid tier IT services space,” says Emkay Global Financial Services research report. 

Public holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.