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Research
Accumulate MindTree - 3QFY2012 Result Update - Angel Broking
Posted On : 2012-01-20 10:51:13( TIMEZONE : IST )
MindTree reported a modest set of numbers for 3QFY2012, with PAT coming in ahead of our expectations due to lower forex losses. The company reported a 0.8% qoq decline in volume due to a 5.4% qoq decline in revenue from the product engineering business (PES) because of billing getting freezed due to the holiday season. MindTree has been one of the good performers on the revenue growth as well as margin front in the Indian IT mid-cap space, growing by a 5.1% CQGR over the past seven quarters. We recommend Accumulate on the stock.
Quarterly highlights: For 3QFY2012, MindTree reported USD revenue of US$103.7mn, up 2.3% qoq. In INR terms, revenue came in at Rs.520cr, up 13.8% qoq. EBITDA and EBIT margin increased by 438bp and 486bp qoq to 17.3% and 13.9%, respectively, largely aided by qoq INR depreciation against USD. PAT came in at Rs.61cr, higher than expected due to lower forex losses.
Outlook and valuation: MindTree derives most of its IT services business (~66% of revenue) from growth verticals such as BFSI (~21% of total revenue), manufacturing (~15% to revenue) and travel and transportation (T&T, ~12% to revenue). Management is confident about its IT services business to continue its momentum and hired 3,500 gross employees in 9MFY2012 (most of them being freshers) and plans to hire 300 freshers in 4QFY2012 on a gross level. Also, MindTree has given offers to 3,000 campus graduates for FY2013, who are expected to join from May 2012. This would help MindTree to rationalize its employee pyramid and cushion margins. The PES business is expected to remain soft going ahead. On an overall basis, we expect the company to record a 17.3% and 22.9% CAGR in USD and INR revenue, respectively, over FY2011-13E. On the EBITDA and PAT fronts, we expect the company to record a 37.0% and 41.7% CAGR over FY2011-13E, respectively. We value the stock at 10x FY2013 EPS i.e., with a target price of Rs.502, and recommend Accumulate on the stock.
