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Mindtree: Good performance, but… - Views on News from Equitymaster
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Mindtree: Good performance, but…
Jan 20, 2009

Performance summary
  • Consolidated topline (including Aztecsoft) grows by 17% QoQ during 3QFY09, 69% YoY during 9mFY09.
  • Operating margins expand by 2.7% QoQ during 3QFY09 on account of cost containment and higher utilisation of resources.
  • Adds 19 new clients and 299 employees (gross) during the quarter.
  • Attrition comes down to 13.8% during 3QFY09 from 15% in the previous quarter.
  • On a consolidated basis, revenue guidance stands at of US$ 269 m to US$ 273 m for FY09, operating profit at US$ 62 m to US$ 65 m and net profit at US$ 14.8 m to US$ 17.5 m.


Financial performance: A snapshot…
(Rs m) 2QFY09 3QFY09 Change 9MFY08 9MFY09 Change
Sales 3,120 3,638 16.6% 5,315 8,994 69.2%
Expenditure 2,254 2,529 12.2% 4,445 6,550 47.3%
Operating profit (EBDIT) 867 1,109 28.0% 870 2,444 180.9%
Operating profit margin (%) 27.8% 30.5%   16.4% 27.2%  
Other income 26 32 25.8% 191 102 -46.8%
Depreciation 142 161 13.4% 251 410 63.8%
Interest 45 52 15.5% 43 121 178.9%
Profit before tax 706 929 31.7% 768 2,015 162.5%
Tax 49 37 -24.3% 97 94 -3.0%
Forex gain/(loss) (306) (789)   5 (1,596)  
Profit after tax/(loss) 351 103 -70.7% 676 325 -51.9%
Share of profit to associates 23 - -100.0% - 27  
Minority interest 2 16   - 18  
Net profit 373 87 -76.6% 676 335 -50.4%
Net profit margin (%) 11.9% 2.4%   12.7% 3.7%  
No. of shares (m)       38.0 38.0  
Diluted earnings per share (Rs)*         18.2  
P/E ratio (x)*         11.8  
* On a trailing 12-month basis

What has driven performance in 3QFY09?
  • Mindtree recorded a 17% QoQ growth in topline during 3QFY09, mainly aided by integration of Aztecsoft, which contributed to 24% of total revenues in this quarter and grew by 55% QoQ. Growth in the IT services segment also aided the overall topline performance. This was driven by application development & maintenance services. These services account for 80% of Mindtree’s IT services revenues. Sales from the R&D segment (16% share of total sales) recorded growth of 10% QoQ in during the quarter. The management indicated in the conference call that this segment is expected to grow significantly going forward.

  • Mindtree added 19 new clients during 3QFY09. The company now has 201 active customers. It added 299 employees (gross), thereby taking the total strength to 5,826 employees. The attrition rate has come down to 13.8% from 15% in the previous quarter.

    Segmental Performance
    (Rs m) 2QFY09 3QFY09 Change
    IT Services-Revenues 2,022 2,176 7.7%
    % of total revenues 64.8% 59.8%  
    PBIT margins 29.9% 33.0%  
    R&D Services-Revenues 533 586 10.0%
    % of total revenues 17.1% 16.1%  
    PBIT margins 23.9% 125.5%  
    Aztecsoft Business revenues 565.8 875.5 54.7%
    % of total revenues 18.1% 24.1%  
    PBIT margins 27.5% 11.6%  
    Total Revenue 3,120 3,638  

  • Mindtree’s operating margins expanded by 2.7% QoQ during 3QFY09 due to better utilisation and cost containment. Utilisation (excluding trainees) increased to 71.1% during the quarter as compared to 70.5% in 2QFY09.

  • Mindtree’s net profit declined by 77% QoQ during 3QFY09. This decline can mainly be attributed to unfavorable currency movement and subsequently high forex losses. Excluding these losses, the bottomline has grown by 29% QoQ during 3QFY09.

What to expect?
At the current price of Rs 215, the stock is trading at a multiple of 6.0 times our estimated FY11 earnings. The management has indicated its caution about the current economic scenario. It has also indicated of not witnessing any pricing pressure till the end of December 2008. However, the pressure on pricing has been witnessed in the current month. The management has increased its revenue guidance for FY09 to US$ 269 m to US$ 273 m (earlier the company had guided for US$ 228 m to US$ 238 m in revenues for FY09). This is mainly on account of acquisition and integration of Aztecsoft. We remain positive on the company from 2 to 3 years perspective.

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