Hold MindTree - PINC Result Review

MindTree recorded in-line results with 7%QoQ USD revenue growth. It decided to exit the product business and be a pure services company. It will restructure the product business at an additional cost of USD12-14mn. EPS for the quarter was Rs5.7 (47.2%QoQ growth).

- IT Services grew strongly, but margins decline
- Cancels handset product plan; and would restructure the business
- Europe revives, BFSI outperform
- Strong employee addition, but attrition high

We consider the exit from handset business as positive since it is a very competitive space and requires continuous R&D investments with low revenue visibility. However existing investments in product business and restructuring costs would be an overhang on margins in FY11. MindTree has shown good traction in IT Services; R&D Services are expected to improve in FY12 and provide growth momentum. The stock trades at 11.1x FY12E earnings. We maintain 'HOLD' recommendation with a target price of Rs560 based on 12x FY12E EPS.

Source : Equity Bulls

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