Reduce MindTree - Geojit BNP Paribas

Maintain 'reduce' on MindTree – TP Rs.420

- USD revenue for 4QFY12 increased modestly by 1.3% qoq and in line with estimates.

- However, 1HFY13 is expected to be weak, usually this is the stronger half.

- EBIT margin during 4QFY12 expanded 160 bps qoq as employees cost declined on improving employees mix and weak net hiring.

- Better EBIT and higher than expected other income led to considerable EPS beat.

- Management expects FY13 USD revenue growth ahead of the industry average (11 -14% as per NASSCOM estimates).

- However, based on the 3000 campus hires and likely single digit growth in Product Engineering (PES), the company is expected to satisfy with low teen growth.

- Company's active clients decreased from 283 to 237 since 1Q. Attrition has been brought down to 18% from 26% in 1Q.

- Management sees more margin levers from utilization and lower cost graduate hiring.

- However, the company may have to increase wages in fy13 and higher visa and front-end costs could hurt.

- About 200 bps of the 350 bps margin expansion in FY12 came from forex gains. If forex trends reverse, there would be significant cut in future EPS.

Source : Equity Bulls

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