Reduce MindTree – TP Rs.350 - Geojit BNP Paribas Financial Services Limited

The company has missed the modest revenue growth expectations.

3QFY12 USD revenue growth at 2.3% qoq missed market estimate of 3.2%.

EBITDA margin was on expected lines. Margin expanded by 440 bps qoq, but 410 bps of this is only from favorable exchange rate.

EPS was better than expected by 12% but this was due to fewer than expected hedging losses.

Product Engineering (PES) contributing 33% of revenue was down 5.4% qoq on seasonal weakness and slow semiconductor client spending.

However, IT services was up 6.7% qoq.

Volumes were down 0.8% qoq but realization grew by 3.5%, which was helped by fewer working days and a non – recurring milestone payment.

3QFY12 numbers were aided by favorable exchange rate but this is unlikely to sustain in 4QFY12. If rupee strengthens, margins may be under pressure and EPS to be cut. Revenue growth is expected to be muted at 2-2.5% despite a mild recovery in the PES segment. IT segment growth would also be low.

Positives are the continued focus on core accounts but active clients have declined by 25 since 1Q.

'Reduce' rating is maintained with a target price of Rs.350 over one year.

Source : Equity Bulls

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