mindtree ltd q1 fy14 detail reportbreport.myiris.com/firstcall/minconsu_20130720.pdfsegment revenue...
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CMP (Rs) 942.60
Target Price (Rs) 1037.00
ISIN: INE018I01017
July 20th
, 2013
MINDTREE LIMITED Result Update: Q1 FY14
BUYBUYBUYBUY
Stock Data
Sector IT
BSE Code 532819
Face Value 10.00
52wk. High / Low (Rs.) 966.20/611.00
Volume (2wk. Avg ) 6880.00
Market Cap ( Rs in mn ) 39117.90
Annual Estimated Results (A*: Actual / E*: Estimated)
Years FY13A FY14E FY15E
Net Sales 23618.00 27869.24 31770.93
EBITDA 4870.00 5958.85 6762.29
Net Profit 3389.00 4172.87 4791.63
EPS 81.66 100.55 115.46
P/E 11.54 9.37 8.16
Shareholding Pattern (%)
1 Year Comparative Graph
BSE SENSEX MINDTREE LTD
SYNOPSIS
MindTree Ltd is global Information
Technology consulting & Implementation
Company that delivers business solutions
through global software development.
During the quarter, Company’s net profit
jumps to Rs. 1353.00 million against Rs.
890.00 million in the corresponding quarter
of previous year, an increase of 52.02%.
During the quarter ended, the company has
222 active customers as of June 30, 2013
and $10 million customers grow to 10.
MindTree has received a two multi-year
engagements with an existing customer who
is a world leader in the computer and
software technology industry and it will
provide support services for their developer
tools and cloud business.
MindTree has received a large multi-year
engagement with an existing customer in
the global financial services area.
Mindtree was listed in Top 100 best
companies to work for in India.
Net Sales and PAT of the company are
expected to grow at a CAGR of 18% and 30%
over 2012 to 2015E respectively.
Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Mind Tree Ltd 942.60 39117.90 81.66 11.54 2.98 120.00
Wipro Ltd 390.75 962853.00 23.71 16.48 3.95 350.00
Oracle Financial Services Software Ltd 2778.30 233589.80 122.42 22.69 3.21 0.00
HCL Technologies Ltd 892.50 621285.40 41.89 21.31 9.41 600.00
Investment Highlights STANDALONE
Results updates- Q1 FY14,
Mind Tree Ltd is a global information technology
solutions company to help business & societies
Flourish, reported its financial results for the
quarter ended 30th June, 2013. The first quarter
witnesses a healthy increase in overall sales as well
as profitability of the company. This quarter’s
performance continues that trend and has been
encouraging both from a revenue and profitability
perspective.
Months Jun-13 Jun-12 % Change
Net Sales 6477.00 5630.00 15.04
PAT 1353.00 890.00 52.02
EPS 32.52 21.87 48.73
EBITDA 1308.00 1312.00 (0.30)
The company’s net profit jumps to Rs. 1353.00 million against Rs. 890.00 million in the corresponding quarter
ending of previous year, an increase of 52.02%. Revenue for the quarter increase 15.04% to Rs. 6477.00 million
from Rs. 5630.00 million, when compared with the prior year period. Reported earnings per share of the
company stood at Rs. 32.52 a share during the quarter, registering 48.73% increase over previous year period.
Profit before interest, depreciation and tax is Rs. 1308.00 millions as against Rs. 1312.00 millions in the
corresponding period of the previous year.
Expenditure :
During the quarter Total Expenditure rose by 18 per
cent mainly on account of increase in Other
Expenses along with consideration of Depreciation
in the rupee impact. Total expenditure in Q1 FY14
was at Rs. 5467.00 million as against Rs. 4615.00
million in Q1 FY13. Other Expenses raised Rs.
1462.00 millions against Rs. 1014.00 millions in the
corresponding previous year. Employee Benefit
Expenses Rs. 3824.00 million and Depreciation is Rs.
181.00 million in Q1 FY14 are the primarily
attributable to growth of expenditure.
Segment Revenue
Latest Updates
• During the quarter, Mind tree Ltd has 29,032 shares upon exercise of stock options and restricted shares by
employees/ directors.
• Mindtree was listed in Top 100 best companies to work for in India. Mindtree ranked 40th among the 535
participating organizations, moving up 7 ranks as compared to last year according to The Economic times &
Great Place to Work® Institute.
• The company has maintained similar or better levels of dividend payout over the next few years in view of
the improved predictability and stability of the company's operations.
• Major clients win
� Two multi-year engagements with an existing customer who is a world leader in the computer and
software technology industry. Mindtree will provide support services for their developer tools and cloud
business.
� A large multi-year engagement with an existing customer in the global financial services area. Mindtree
will provide support services to their global business services and human resources technology portfolio.
� A large human capital management software and services company based in Europe. Mindtree has been
chosen as a strategic partner to provide a range of application, testing, BI and infrastructure services.
� An existing customer who is a leading general-use vehicle rental company. Mindtree has been chosen as a
system integration partner to build their next generation pan European digital platform.
• Customers
During the quarter ended, the company has 222 active customers as of June 30, 2013 and $10 million
customers grow to 10.
• Employees
Mind tree Ltd has 12,239 employees as of June 30, 2013 and 1,057 additional employees were added during
the quarter on a gross basis.
Revenue by Geography (Q1 FY14)
Revenue by Service Offering (Q1 FY14)
Revenue Mix (Q1 FY14)
Client Contribution to Revenue (Q1 FY14)
Total Headcounts (Q1 FY14)
Company Profile
MindTree was incorporated in the year 1999 by a group of 10 industrial professionals who came from
Cambridge Technology Partners, Lucent Technologies and Wipro and this team was led by Ashok Soota. It has
formed successful business and technology alliances with big companies like Microsoft, Hewlett Packard, Oracle,
Bluetooth SIG, Intel, IBM, SAP, Orange, Sun Microsystems and many more.
MindTree Ltd is an international Information Technology consulting & implementation company that delivers
business solutions through global software development. The Company is structured into two business units
Information Technology ('IT') Services and Product Engineering ('PE') Services. IT Services offer consulting and
implementation and post production support for customers in manufacturing, financial services, travel and
leisure & other industries, in the areas of e-business, data warehousing and business intelligence, supply chain
management. PE Services provides full life cycle product engineering, professional services & sustained
engineering services.
It also enables faster product realization by leveraging the expertise in the areas of hardware design, embedded
software, middleware and testing and through its own IP building blocks in the areas of Bluetooth, VOIP, IVP6,
ISCSI and others in datacom, telecom, wireless, storage, industrial automation, avionics, consumer products and
computing.
MindTree Ltd to achieve Level 5 certification under both CMMI and PCMM models is undergoing certification
under the revised Software CMMI 1.2 version. MindTree has also undertaken a journey to get its IMTS business
Unit assessed and certified under the ISO 20000 standard. MindTree is certified under ISO 27001 standards for
Information Security Processes and Practices and under ISO 13485 for Medical Device Design.
Services
• Agile
• Analytics and information Mgt
• Application development and maintenance
• Business process management
• Business technology consulting
• Cloud
• Digital business
• Enterprise application services
• Independent testing
• Infrastructure management services
• Mobility
• Product engineering
• Technologies.
Industries
• Banking • Capital markets
• Consumer and communications
• Consumer packaged goods
• Enterprise software
• Insurance
• Manufacturing
• Media and entertainment
• Retail
• Semiconductor
• Travel, hospitality and logistics.
Solutions
• Bluetooth
• Corporate lending
• Digital video surveillance
• Media planning and collaboration
• MindTest
• mKonnect
• mPromo
• mSales
Subsidiaries Companies
• MindTree Software (Shenzhen) Co. Ltd.
• MindTree Wireless Pvt. Ltd. Singapore.
Awards
• Mindtree has awarded ‘Best Corporate Governance India’, 2013 by World Finance magazine.
• The Company has ranked second in ‘Best Overall for Corporate Governance (in India)’ by Asia money and
topped the category of ‘Best for Investor Relations’ in India.
• The Company has ranked the third best software company under the category of “Financial Sustainability
Index”, as part of the BS 1000 list released by the Business Standard magazine in 2012.
• 2012 NASSCOM IT user award in ‘Social Media Adoption in an Enterprise’ category for the intranet
application, People Hub.
Clients
Manufacturing
Retail
Travel and Transportation
Independent Software Vendor (ISV)
Global Presence
• United States of America
• United Kingdom
• Japan
• Singapore
• Australia
• Germany
• France
• Switzerland
• Sweden
• UAE
• Netherlands
• Canada
• Belgium
Financial Highlight STANDALONE
Balance sheet as at March 31st, 2012-2015E
(A*- Actual, E* -Estimations & Rs. In Millions)
Particulars March (Rs.in.mn) FY12A FY13A FY14E FY15E
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 415.00 415.00 415.00 415.00
Reserves and Surplus 9171.00 12722.00 16538.60 20673.25
1. Total Net worth 9576.00 13137.00 16953.60 21088.25
Non Current Liabilities
Long Term Borrowing 37.00 32.00 33.60 35.62
Other Long Term Liabilities 46.00 57.00 65.55 70.79
2. Total Non Current Libilites 83.00 89.00 99.15 106.41
Current Liabilities
Short Term Borrowings 407.00 217.00 162.75 138.34
Trade Payables 107.00 189.00 228.69 251.56
Other Current Liabilities 2455.00 2166.00 1971.06 1833.09
Short Term Provisions 724.00 1112.00 1223.20 1296.59
3. Total Current Libilites 3693.00 3684.00 3585.70 3519.57
Total Liabilities (1+2+3) 13352.00 16910.00 20638.45 24714.23
APPLICATION OF FUNDS
Non-Current Assets
Fixed Assets
Tangible assets 2548.00 2561.00 2791.49 3014.81
Intangible Assets Under Development 43.00 28.00 29.40 31.16
Capital Work in Progress 85.00 571.00 827.95 1175.69
a) Total Fixed Assets 2676.00 3160.00 3648.84 4221.66
b) Deferred Tax Asset 320.00 360.00 338.40 324.86
c) Non- Current Investments 30.00 244.00 331.84 424.76
d) Long Term Loans and Advances 544.00 617.00 678.70 733.00
e) Other Non-Current Assets 1028.00 1046.00 1161.06 1253.94
1. Total Non-Current Assets 4598.00 5427.00 6158.84 6958.22
Current Assets
Current Investment 3075.00 4027.00 5251.21 6742.55
Trade Receivables 4078 4508.00 4958.80 5256.33
Cash and Bank Balances 585.00 1238.00 1795.10 2405.43
Short-terms Loans & Advances 191.00 430.00 645.00 863.58
Other Current Assets 825.00 1280.00 1829.50 2488.12
2. Total Current Assets 8754.00 11483.00 14479.61 17756.01
Total Assets (1+2) 13352.00 16910.00 20638.45 24714.23
Annual Profit & Loss Statement for the period of 2012 to 2015E
Value(Rs.in.mn) FY12A FY13A FY14E FY15E
Description 12m 12m 12m 12m
Net Sales 19152.00 23618.00 27869.24 31770.93
Other Income 188.00 350.00 385.00 408.10
Total Income 19340.00 23968.00 28254.24 32179.03
Expenditure -16023.00 -19098.00 -22295.39 -25416.75
Operating Profit 3317.00 4870.00 5958.85 6762.29
Interest -5.00 -10.00 -8.60 -9.03
Gross profit 3312.00 4860.00 5950.25 6753.26
Depreciation -695.00 -624.00 -661.44 -687.90
Profit Before Tax 2617.00 4236.00 5288.81 6065.36
Tax -430.00 -847.00 -1115.94 -1273.73
Net Profit 2187.00 3389.00 4172.87 4791.63
Equity capital 405.00 415.00 415.00 415.00
Reserves 9171.00 12722.00 16538.60 20673.25
Face value 10.00 10.00 10.00 10.00
EPS 54.00 81.66 100.55 115.46
Quarterly Profit & Loss Statement for the period of 31st Dec, 2012 to 30th Sep, 2013E
Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E
Description 3m 3m 3m 3m
Net Sales 5901.00 6124.00 6477.00 6800.85
Other Income 70.00 154.00 117.00 100.62
Total Income 5971.00 6278.00 6594.00 6901.47
Expenditure -4555.00 -5114.00 -4669.00 -5284.26
Operating profit 1416.00 1164.00 1925.00 1617.21
Interest -2.00 -1.00 -1.00 -1.23
Gross profit 1414.00 1163.00 1924.00 1615.98
Depreciation -151.00 -155.00 -181.00 -173.76
Profit Before Tax 1263.00 1008.00 1743.00 1442.22
Tax -275.00 -219.00 -390.00 -278.35
Net Profit 988.00 789.00 1353.00 1163.87
Equity capital 412.00 415.00 416.00 416.00
Face value 10.00 10.00 10.00 10.00
EPS 23.98 19.01 32.52 27.98
Ratio Analysis
Particulars FY12A FY13A FY14E FY15E
EPS (Rs.) 54.00 81.66 100.55 115.46
EBITDA Margin (%) 17.32% 20.62% 21.38% 21.28%
PBT Margin (%) 13.66% 17.94% 18.98% 19.09%
PAT Margin (%) 11.42% 14.35% 14.97% 15.08%
P/E Ratio (x) 17.46 11.54 9.37 8.16
ROE (%) 22.84% 25.80% 24.61% 22.72%
ROCE (%) 40.04% 41.04% 38.46% 34.87%
Debt Equity Ratio 0.05 0.02 0.02 0.01
EV/EBITDA (x) 11.47 7.83 6.31 5.47
Book Value (Rs.) 236.44 316.55 408.52 508.15
P/BV 3.99 2.98 2.31 1.85
Charts
Outlook and Conclusion
� At the current market price of Rs.942.60, the stock P/E ratio is at 9.37 x FY14E and 8.16 x FY15E
respectively.
� Earnings per share (EPS) of the company for the earnings for FY14E and FY15E are seen at Rs.100.55 and
Rs.115.46 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 30% over 2012 to 2015E
respectively.
� On the basis of EV/EBITDA, the stock trades at 6.31 x for FY14E and 5.47 x for FY15E.
� Price to Book Value of the stock is expected to be at 2.31 x and 1.85 x respectively for FY14E and FY15E.
� We expect that the company surplus scenario is likely to continue for the next years, will keep its growth
story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.1037.00 for Medium to Long term investment.
Industry Overview
The information technology (IT) and information technology enabled services (ITeS) industry has been one of
the key driving forces fuelling India’s economic growth.
India is one of the fastest-growing IT services markets in the world, with three-quarters of large Indian
enterprises planning to increase IT spending in 2013, with an average IT budget of US$ 12.2 million, according to
a survey by Gartner.
The Indian IT-business process outsourcing (BPO) sector including the domestic and exports segments continue
to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. The
companies continue to move up the value-chain to offer higher end research and analytics services to their
clients. India's leadership position in the global IT and BPO industries are based primarily on the following
advantages.
Market Size
The Indian IT and ITES industry has continued to perform its role as the most consistent growth driver for the
economy. Service, software exports and BPO remain the mainstay of the sector. Over the last five years, the IT
and ITES industry has grown at a remarkable pace. A majority of the Fortune 500 and Global 2000 corporations
are sourcing IT and ITES from India and it is the premier destination for the global sourcing of IT and ITES
accounting for 55 per cent of the global market in offshore IT services and garnering 35 per cent of the ITES/BPO
market.
India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87
billion, according to Nasscom.
The Indian IT infrastructure market is projected to grow by 9.7 per cent y-o-y to reach US$ 2.1 billion in 2013.
Nasscom has created a separate unit to drive its newfound enthusiasm for software products, and has set a target
of US$ 10 billion in revenues from software products by 2020.
Investments
EMC Corporation's investment in India is expected to reach US$ 1.5 billion by 2014. The company started its
journey in India with a modest investment of US$ 100 million in 2005.
Some of the major investments in the sector are as follows:
• D-Link plans to set up a testing lab in India in the second half of this year to ensure better localisation,
said Mr A P Chen, Chairman, D-Link
• Hexaware Technologies has set up an onshore delivery centre in Texas, US. The centre is its third onshore
delivery centre in the US
• NIIT Technologies has won a multi-year contract from the Airports Authority of India (AAI) worth Rs 344
crore (US$ 61.84 million) for the implementation of Airport Operations Control Centres (AOCC)
• The Software Technology Parks of India (STPI) plans to set up a data centre in Hyderabad. The centre will
address the storage and cloud needs of small and medium enterprises (SME)
• Wipro has signed an agreement to acquire a minority stake in Opera Solutions, a global big data and
analytics company, for about US$ 30 million
Government Initiatives
FDI up to 100 per cent under the automatic route is allowed in Data processing, software development and
computer consultancy services; Software supply services; Business and management consultancy services,
Market Research Services, Technical testing & Analysis services.
The Government of India's move to do away with the mandatory requirement of 10 hectares of minimum land
area for setting up an IT and ITeS special economic zones (SEZ) is expected to provide a major boost to the real
estate and IT sector.
Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:
• The Government of West Bengal plans to spend Rs 41 crore (US$ 7.37 million) to roll out citizen-centric
services electronically across 19 districts including Kolkata
• Kerala has set an ambitious target of becoming a cent per cent digital state in governance, said Mr P K
Kunhalikutty, Minister for Industries and Information Technology, Government of Kerala. The State has
around 600 small, medium and large IT firms employing over 80,000 professionals directly and nearly
three times the number indirectly
• The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims
to increase revenues of IT and ITES industry from US$ 100 billion to US$ 300 billion by 2020 and expand
exports from US$ 69 billion to US$ 200 billion by 2020
• The Government of India plans to set up 15 new laboratories for testing hardware and software products
under public-private partnership (PPP) model
• The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks,
that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and
payments towards investments should be made only through the electronic mode
Road Ahead
Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a
sizeable chunk of the global market for technology sourcing and business services. Over the years the growth
drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance
and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of
IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency
and sustainable energy. Traditional business strongholds would make way for new geographies, there would be
new customers and more and more of SMEs will go for IT application and services.
Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also
extended to IT sector for STPI and SEZs. Further, the country is providing procedural ease and single window
clearance for setting up facilities.
Growth in offshoring is expected to outclass the growth in overall IT spend across the various verticals.
Offshoring as a per cent of total spend is also expected to rise across the various verticals. India has the
opportunity to tap the growing offshoring market with its cost advantage, expertise and huge talent pool.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – [email protected]
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