'Buy' MindTree – TP Rs.780 - Geojit BNP Paribas Financial Services

- Buy rating is maintained on MindTree with a target price of Rs.780 over one year.

- MindTree has met the modest USD revenue growth expectations of the market (0.4% qoq). EPS is in line with expectations.

- Company now expects to meet NASSCOM's industry growth estimates of 11-14% for FY13.

- EBIT margin expanded 184 bps qoq and it is better than market expectations. Better EBIT margin is mainly due to improving employee mix and SG&A management.

- Management's revenue outlook could generate minor doubts, as product engineering that contributing 31% of revenue contracted 5% qoq because of the ramp down of two clients. A sharp uptick in activity is needed from 2Q to make up this and just to end flat yoy in FY13.

- The company is required to depend on continued IT services strength to meet the lower end of the NASSCOM's forecast.

- Company's margin story remains to focus on strategic clients and operational improvement.

- Attrition declined to 17% from 26% yoy. This coupled with lower cost graduate hiring would be key levers on margins.

- EPS projection for FY13 is Rs.81 and it seems that there is little risk to achieve this as the rupee remains weak.

- Two negative points seen are weak net hiring and negative operating cash flow. Operating cash flow turned negative because of high receivables.

Source : Equity Bulls

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