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Mindtree: Exits cash-guzzling phone biz - Views on News from Equitymaster
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Mindtree: Exits cash-guzzling phone biz
Oct 20, 2010

Mindtree announced 2QFY11 results. Its topline grew by 10% QoQ while net profits were up whopping 46% QoQ due to higher other income and lower tax rates during the quarter.

Performance summary
  • Net sales grow by 10% QoQ during 2QFY11.
  • Operating margins remain stable despite higher sales, and due to higher operating expenses during the quarter.
  • Adds 21 new clients during the quarter thus taking the total number of active clients to 261.
  • Trailing 12 months attrition increased sharply to 21.9% during the quarter from 17.8% reported in the previous quarter (1QFY11).
  • Declared an interim dividend of Rs 1.25 per share.

    Financial performance: A snapshot…
    (Rs m) 1QFY11 2QFY11 Change 1HFY10 1HFY11 Change
    Sales 3,487 3,844 10.2% 6,197 7,331 18.3%
    Expenditure 3,064 3,380 10.3% 5,032 6,443 28.0%
    Operating profit (EBDIT) 423 464 9.7% 1,165 888 -23.8%
    Operating profit margin (%) 12.1% 12.1%   18.8% 12.1%  
    Other income 21 25 19.0% 371 46 -87.6%
    Depreciation 145 177 22.1% 320 322 0.6%
    Interest - -   25 -  
    Profit before tax 299 312 4.3% 1,191 612 -48.6%
    Tax 140 80 -42.9% 125 221 76.8%
    Profit after tax/(loss) 159 232 45.9% 1,066 391 -63.3%
    Net profit margin (%) 4.6% 6.0%   17.2% 5.3%  
    No. of shares (m)       39.2 39.8  
    Diluted earnings per share (Rs)*         37.1  
    P/E ratio (x)*         14.2  

  • Mindtree recorded a 10% QoQ growth in net sales during 2QFY11. This was led by an 8% QoQ growth in volumes. Pricing declined marginally by 0.8%. The management expects billing rates to remain stable going forward. It also expects a higher traction in revenue growth for the entire year.

  • Mindtree's key verticals witnessed decent growth except for the 'R&D' segment, which saw a revenue decline of 2% QoQ during the quarter. The management expects this trend to reverse during the second half of the year and expect the segment to witness growth for the full year FY11. The 'BFSI' and 'manufacturing' segments witnessed robust growth of 15% QoQ and 14% QoQ respectively during the quarter.

  • In terms of geographies, Mindtree saw a growth of 8% QoQ and 17% QoQ in its US and Europe businesses respectively. Business from India increased by 17% QoQ and that from the rest of the world increased by 9% QoQ during the quarter.

    Segmental Performance
    (In Rs m) 1QFY11 2QFY11 Change 1HFY10 1HFY11 Change
    On basis of segment            
    IT Services-Revenues 1,886 2,191 16.1% 3,448 4,078 18.3%
    Product Engineering Services 1,601 1,653 3.3% 2,749 3,253 18.3%
    On basis of industry vertical            
    Manufacturing 474 538 13.5% 812 1,012 24.7%
    BFSI 603 696 15.3% 1,090 1,299 19.1%
    Travel and transportation 464 484 4.4% 895 948 6.0%
    R & D 464 454 -2.2% 899 917 2.0%
    Software Product Engineering (SPE) 941 1,003 6.6% 1,847 1,945 5.3%
    Other 540 669 23.8% 654 1,209 85.0%
    On basis of geography            
    US 2,253 2,426 7.7% 4,121 4,678 13.5%
    Europe 589 692 17.4% 1,301 1,281 -1.5%
    India 279 327 17.1% 344 606 76.2%
    Rest of the world 366 400 9.2% 431 766 77.6%

  • Mindtree has decided to discontinue its 3G phone business and convert it to a service oriented business instead. The company had initially planned to launch an Android based 3G phone in December this year. As the business appears to be requiring more cash than was previously estimated, the company has decided to discontinue the same. The skill sets and infrastructure would now be restructured into a service oriented business.

  • Mindtree added 21 new clients during the quarter. It added 572 employees (net), thereby taking the total strength to 9,584 at the end of the quarter. However, the attrition rate increased to 21.9% at the end of September 2010.

  • Mindtree's operating margins declined marginally by 0.1% QoQ during the quarter. The increase in revenues was offset by an increase in operating expenses. This was due to wage hikes, increase in headcount and increase in travel related expenses.

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