MindTree - 4QFY13 Results Update - Motilal Oswal

Operational performance in-line: MindTree (MTCL) reported in-line operational performance for 4QFY13. Revenue was USD113m, up 2.9% QoQ (v/s our estimate of 2.8% QoQ). EBITDA margin declined 140bp QoQ to 19% (v/s our estimate of 19.2%) on drop in utilization, investments in the front end, and higher people intake. PAT was INR789m, down 20% QoQ and below our estimate of INR856m, primarily due to forex loss of INR153m.

- 4QFY13 deal signings lend visibility to FY14 revenue: MTCL's total deal signings of USD165m in 4QFY13 lend visibility of higher revenue growth in FY14. The company expects PES to return to growth in FY14, after 4% decline in FY13, and IT Services to improve upon its FY13 USD revenue growth rate of 14.6%.

- Outlook for 1QFY14: In 1QFY14, MTCL expects to grow better than in 4QFY13, with acceleration seen in both IT Services and PES. Margins, however, should see some decline, as freshers join the company at a healthy rate.

- Growth in both IT Services and PES in 4QFY13: Both IT Services and PES grew during the quarter, with IT Services growing at 3% QoQ and PES at 2.3%. Growth in IT Services was driven by Manufacturing & Retail (+8.3% QoQ), IMS (+8.3% QoQ) and RoW (+22.6% QoQ).

- Revising USD revenue estimates upwards: We have revised our USD revenue estimates for FY14/FY15 upwards by 0.7%/1.8%, following deal wins worth USD165m, which substantiate the management's outlook for growth acceleration in FY14. However, we are cautious on profitability and model 118bp YoY decline in FY14 EBIT margin.

- Maintain Buy: MTCL is one of the few companies in the mid-tier IT space, with some visibility of growth acceleration in FY14. The company's payout ratio in FY13 was ~15% and may improve, going forward. Our target price of INR976 discounts FY15E EPS by 10x, and implies 15% upside. Buy.

Source : Equity Bulls

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