Buy MindTree; target of Rs 472: SPA Research

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Buy MindTree; target of Rs 472: SPA Research

SPA Research is bullish on MindTree and has recommended buy rating on the stock with a target of Rs 472 in its January 19, 2012 research report.

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SPA Research is bullish on MindTree and has recommended buy rating on the stock with a target of Rs 472 in its January 19, 2012 research report.

"Mindtree (MTCL) came out with its 3QFY12 results, in-line with our estimates. The USD revenue of $ 103.7mn grew by 2.3% fueled by pricing improvement, also helping improve margins. Other major reason for margin improvement of 439bps to 17.3% was 11.2% INR depreciation. The company has now showcased a c.10% CQGR in the last four quarters since its product writeoffs, underlining a quick turnaround"

"The company witnessed a sequential USD revenue growth of 2.3% on the back of 3.5% improvement in pricing offset partially by dip in volumes (-40bps) and cross currency headwinds (-80bps). The inline, 3QFY12 revenue of INR 5,197mn (est. INR 5,102mn) was aided by sharp fall (11.2%) in INR, contributing to the 13.8% sequential growth. The company is on a steady growth trajectory reporting c.10% CQGR since the product write-offs in 4QFY11. MTCL witnessed a 439bps improvement in its EBITDA Margins aided by operational efficiency (30bps) and currency depreciation (409bps). Operational efficiency improved as a result of (i) increased pricing, which came as a one-off milestone payment from a big European Telecom company that has displaced Microsoft as MTCL's top client this quarter (ii) increased Fixed Bid Projects and (iii) higher contribution from PI and Consulting practices. Utilization dip remains a significant margin lever in an appreciating currency scenario."

"MTCL's INR realization rate was INR 50.15 as against INR 51.1 for some of its peers due to its accounting policy, thus a sharp appreciation in INR would have lesser affect on its growth and margins. However, global economic scenario and client budgets will continue to be a strong headwind. Factoring this and the impact it would have on MTCL's PES business we have estimated a 14.5% revenue growth in FY13 with a stable, 14.2% operating margin. We retain BUY recommendation on the stock with a 15 month target price of INR 472.0 based on 10x FY13E earnings of INR 47.2," says SPA Research report.     

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To read the full report click on the attachment