MindTree - 2QFY2013 Result Update - Angel Broking

MindTree reported broadly in-line but subdued set of results for 2QFY2013. The volume growth was muted at 1.0%. Operating margins fare better than expectations with the company reporting a 127bp improvement despite wage increments. 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 3.3% CQGR in its revenue over the past eight quarters. We maintain Accumulate rating on the stock.

Quarterly highlights: For 2QFY2013, MindTree reported USD revenue of US$107.3mn, on the back of 1.0% and 0.5% qoq volume and pricing growth, respectively. The EBITDA margin improved by 127bp qoq to 22.1%, aided by 140bp qoq gain form INR depreciation and 250bp qoq benefit derived from operational efficiency. The EBITDA margin was negatively impacted by 180bp qoq due to wage hikes and 70bp qoq due to rebranding costs. The PAT came in at Rs.72cr, down 18.8% qoq, hit because of forex loss of ~Rs.42cr, but this loss was partially recouped by a lower tax outgo.

Outlook and valuation: Because of muted growth in 1HFY2013, the management lowered its revenue growth guidance from 11-14% earlier to less than 11% now. This was already factored in our estimates keeping in mind the stretched growth rates required quarterly (FY2013E USD revenue growth - ~8.5%). The management indicated that it remains in pursuit of 6-7 large deals (total contract value [TCV] of US$25mn+) and remains hopeful of closing at least one large deal in the next four weeks. We expect an 8.5% USD revenue growth for MindTree in FY2013. Overall, we expect the company to record an 8.9% and 12.8% CAGR in USD and INR revenue, respectively, over FY2012-14E. We expect the company to record a 21.2% CAGR in its EBITDA over FY2012-14E. We value the stock at 10x FY2014E EPS, ie, with a target price of Rs.747, and maintain our Accumulate rating on the stock.

Source : Equity Bulls

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