MindTree Ltd - PINC Result Update

MindTree reported ~3.4%QoQ revenue growth in dollar terms, with a strong volume growth of 7.1%QoQ. Operating margin declined to 12.6% (570bpsQoQ decline) due to salary raise (partial), currency movements and investment in the product business. EPS stood at Rs3.9 (71%QoQ).

• Strong volume growth but realization drops
• Investments in product business (USD10mn in Q2-Q4FY11)
• India and US lead growth, Manufacturing and SPE recovers
• Strong employee addition (net), attrition up like peers

The volume growth is good compared to peers and the operating margin excluding the investment in products has likely bottomed out. However, investments in product business will suppress the profits in FY11. The growth in FY12 may show upside due to expected increase in discretionary IT spending and some potential of products business. We maintain 'HOLD' rating with a target price of Rs585 based on 12x FY12E earnings.

Source : Equity Bulls

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