MindTree - 4QFY2013 Result Update - Angel Broking

MindTree reported broadly in-line set of results on the revenue front, but disappointed on the bottom-line font, for 4QFY2013. The volume growth was strong at 3.7% qoq but price realization declined by 1.4% qoq. The company's Management indicated that it remains hopeful of FY2014 turning out to be a better revenue growth year as compared to FY2013. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 4QFY2013, MindTree reported USD revenue growth of 2.8% qoq to US$113mn. In INR terms, revenue came in at Rs. 612cr, up 3.8% qoq. The EBITDA and EBIT margins of the company declined by 141bp and 138bp qoq to 19.0% and 16.5%, respectively. This was due to factors such as: 1) increase in SG&A expenses, 2) increase in employee costs due to freshers getting added into the system and 3) decline in utilization level. The PAT came in at Rs. 79cr, down 20% qoq.

Outlook and valuation: MindTree's Management indicated that it remains hopeful of FY2014 turning out to be a better revenue growth year as compared to FY2013 because of pick up in client spending (backed by a positive survey of its top clients) and with the company's greater concentration on mining its focus clients. The company has invested into more hunting resources in the US and Europe in anticipation of more business on account of the above. Even within the product engineering services (PES) segment, the company cited better prospects in FY2014 as against in FY2013. The Management is confident that its IT services business would continue with the momentum with fresher joining mapped at a strong ~1700 headcounts for FY2014 (about 50% of it being spill over from FY2013 deferment) apart from the need based lateral additions. This would help MindTree to rationalize its employee pyramid and cushion its margins. Overall, we expect the company to record a 10.5% and 10.3% CAGR in USD and INR revenue, respectively, over FY2013-15. At the current market price of Rs. 849, the stock is trading at 10.0x FY2014E and 9.2x FY2015E EPS. We value the stock at 10x FY2015E EPS, translating into a target price of Rs. 920, and maintain our Accumulate rating on the stock.

Source : Equity Bulls

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