Mindtree - Inline quarter - SBICAP Securities

Mindtree reported revenues of US$113mn, in-line with SSLe of US$112.6mn, growing at 2.9% QoQ. Fee Volumes grew 3.7% QoQ and blended pricing declined 1.4% QoQ. EBIT margins declined 138bps QoQ largely on account of lower utilizations (down 220bps) and higher S&M investments. Net profit in Rupee terms was Rs789mn, inline with SSLe of Rs785mn. The management expects F14 revenue growth rates to be better than F13 considering (a) continued growth momentum in ITS, (b) stability returning in PES business, and (c) recent deal wins and healthy deal pipeline (Q4 TCV US$165mn).

Manufacturing, Package Implementation, IMS and emerging markets drive growth: IT Services (ITS) led growth in 4QF13, growing 3.1% QoQ whereas Product Engineering Services (PES) grew 2.5% QoQ. Within ITS, Manufacturing & Retail grew 8.3%, others grew 5.3% and Travel, Transportation and Services (TTS) grew 2.8%. Amongst the service lines, IP Led revenues reported a 34.5% growth, Package Implementation grew 15.4% and Infrastructure Management continued its growth momentum with 8.3% QoQ growth. Amongst the geographies, RoW led with 22.6% QoQ growth on the back of 21% QoQ growth in 3QF13 contributing to over 60% of the incremental revenues for 4QF13.

Management guides F14 to be a better year than F13: Management expects F14 to be a better year considering the stronger momentum it is witnessing in demand environment, the deal wins in the last few quarters, enhanced focus of top 40 accounts and expansion in the deal funnel. The company has also strengthened its field force and account management to expand its wallet share in top 40 clients. The management expects ITS to maintain its growth momentum, whereas PES to show stability in performance. It expects 1QF14 growth rates to be similar to 4QF13. The management targets to maintain F14 EBITDA margins at F13 levels, however it expects margins to decline QoQ in 1QF14 due to fresher hires and visa costs.

Valuation: The company remains confident of maintaining its performance on back of benefits accruing from the multi-sourcing and investment into sales force, despite industry-wide growth challenges in a tough macroeconomic environment. We have fine tuned our F14/F15 earnings estimates after factoring (a) F13 numbers, (b) capex guidance and (c) higher dividend payout. Considering limited absolute upside, we maintain a HOLD recommendation with a target price of Rs900.

Source : Equity Bulls

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