Accumulate MindTree; target of Rs 708: Angel Broking

“MindTree reported in-line operational performance for 1QFY2013, with PAT coming in ahead of our expectation because of higher than expected forex gain. MindTree has been one of the good performers on the revenue ass well as margin front in the Indian IT mid-cap space, posting a 3.6% CQGR in its revenue over the past eight quarters. Management sounded confident of meeting Nasscom’s average revenue growth guidance for FY2013. We maintain Accumulate rating on the stock.”

“For 1QFY2013, MindTree reported USD revenue of US$105.5mn, on the back of 0.2% and 0.4% qoq volume and pricing growth, respectively. EBITDA margin improved by 211bp qoq to 20.9%, aided by 230bp qoq gain form INR depreciation and 80bp qoq benefit derived from operational efficiency. EBITDA margin was negatively impacted by 100bp qoq due to wage hikes given to 80% of the employee base from June 1, 2012.”

“Management is confident that its IT services business would continue its momentum and has given offers to 3,000 campus graduates for FY2013. Overall, the management indicated that the company will achieve Nasscom’s current industry growth guidance of 11-14% yoy in FY2013. To achieve this, the company requires minimum ask rate of 3.8% from 2QFY2013- 4QFY2013, which looks a bit stretched. Keeping that in notice, we expect USD revenue to grow by 9.5% yoy in FY2013. Overall, we expect the company to record a 9.8% and 14.8% CAGR in USD and INR revenue, respectively, over FY2012-14E. We expect the company’s EBITDA margin to increase from 15.3% in FY2012 to 18.6% in FY2013. Further, we expect the company to record a 22.4% CAGR in its EBITDA over FY2012-14E. We value the stock at 10x FY2014E EPS, i.e., with a target price of Rs708, and maintain Accumulate rating on the stock,” says Angel Broking research report.

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