Mindtree - 3QFY2014 Result Update - Angel Broking

For 3QFY2014, Mindtree's operational performance came largely in line with our expectations but the bottom-line disappointed due to forex losses. During the quarter, the company signed deals of TCV of ~US$139mn, taking the total TCV of its deal wins in the last four quarters to ~US$540mn. The deals include both, renewals and new incremental business. We maintain an Accumulate rating on the stock.

Quarterly highlights: For 3QFY2014, Mindtree reported a USD revenue growth of 2.5% qoq to US$127.1mn, on the back of 2% qoq volume growth. In INR terms, the revenue came in at Rs. 791cr, up 2.7% qoq. The EBITDA and EBIT margins of the company decreased by 127bp and 134bp qoq to 19.5% and 16.9%, respectively, due to increase in employee costs on account of wage hikes given to 20% of the employees as well as recruitment at the senior level. The PAT came in at Rs. 89cr, impacted by a forex loss of Rs. 27cr as against a gain of Rs. 20cr in 2QFY2014.

Outlook and valuation: For 4QFY2014, the Management has guided for better top-line growth than of 2.5% as in 3QFY2014. Also, it expects growth in 4QFY2014 to be better than normal 4Q seasonality witnessed in the past couple of years, implying that growth rates could exceed 3% qoq. The Management reiterated that FY2015 will turn out to be a better growth year as compared to FY2014 because of pick up in client spending and as a result of the company's greater concentration on mining its focus clients. The company has expanded its client mining focus to top-30 clients from top-10 earlier. Overall, we expect the company to record a 15.0% and 22.0% CAGR in USD and INR revenue, respectively, over FY2013-15E. We expect the company to record a 19.5% and 23.8% CAGR in its EBIT and PAT over FY2013-15E. We value the stock at 13x FY2015E EPS, translating into a target price of Rs. 1,620, and recommend an Accumulate rating on the stock.

Source : Equity Bulls

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