MindTree - 4QFY2012 Result Update - Angel Broking

MindTree reported modest results for 4QFY2012, with OPM and PAT coming in ahead of ours as well as street's expectations. The company reported a 4.9% qoq increase in volumes. MindTree has been one of the good performers on the revenue as well as margin front in the Indian IT mid-cap space, posting a 4.5% CQGR in its revenue over the past eight quarters. The company expects to post average industry growth in FY2013. We maintain our Buy rating on the stock.

Quarterly highlights: For 4QFY2012, MindTree reported USD revenue of US$105mn, up merely 1.3% qoq, due to a 3.6% pricing decline because of bump-up in pricing in 3QFY2012, which got normalized in 4QFY2012. EBITDA margin improved by 149bp qoq to 18.7%, largely on the back of gains derived from lower employee costs. PAT came in at Rs.69cr, up 13.8% qoq.

Outlook and valuation: MindTree derives most of its IT services business (~66% of revenue) from growth verticals such as manufacturing and travel and transportation (T&T). BFSI vertical is witnessing slightly higher signs of pressure and caution. Management is confident that its IT services business would continue its momentum and 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 its margins. Management expects the PES business to post almost double-digit revenue growth in FY2013. Overall, we expect the company to record an 11.5% and 13.1% CAGR in USD and INR revenue, respectively, over FY2012-14E. We expect the company's EBITDA margin to increase from 15.3% in FY2012 to 16.0% in FY2013. Further, we expect the company to record a 13.8% CAGR in its EBITDA over FY2012-14E. We value the stock at 10x FY2014E EPS i.e., with a target price of Rs.585, and maintain our Buy rating on the stock.

Source : Equity Bulls

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