Q1FY13 Results - Key Highlights
- MindTree registered a healthy topline growth of 7.1% to Rs5630mn from Rs5257mn on sequential basis and an increase of 36.3% from Rs4131 mn on YoY basis. Volume growth and USD term revenue remain muted at 0.2% and 0.4% respectively. Interestingly, Onsite volume & revenue growth registered a robust 7.1% and 10% respectively. IT services continued its strong momentum, led the pack with 3.3% growth whereas Software Product Engg (SPE) declined by 5.5% due to couple of clients ramp down (in USD terms QoQ). BFSI and Manufacturing led the industry wise growth rate, with an increase of 4.2% and 3.7% respectively. On geographical basis, Europe witnessed a good traction of 4.4%, followed by 1.8% growth from US (in USD terms).
After two consecutive quarters (Q3 &Q4) of stabilization, SPE witnessed a decline again by 5.5% due to two clients ramp down in R&D projects. Considering the uncertain environment and its discretionary project nature, Aditya Birla Money expects SPE business to remain volatile. However, management sounded confident of bring it back to growth trajectory in the upcoming quarters with recent strong deal wins in this segment.
- EBITDA improved by 18.9% to Rs1171 mn from Rs985 mn (QoQ). For the fourth consecutive quarter, the margin has improved from 11.1% in Q112 to 20.8% in Q113, largely on account of favourable rupee and bottom of pyramid concentration strategy. In Q1, it improved by another 206 bps. Aditya Birla Money believes that still MindTree has the operating advantage (fresher’s additions) to compensate the wage hike impact besides favourable rupee.
- PAT jumped by 28.7% to Rs887 mn from Rs689 mn (QoQ) and more than doubled from Rs345 mn on YoY basis.
Back to basics strategy – getting better and better: Penetrating deeper and closer to the top clients has continued to yield better returns as Top client, 5 and 10 clients grew by 1.7%, 7.1% and 3.7% respectively in Q1. On an average (Q112-Q113), MT extracted at faster clip from top clients portfolio by growing at 5%, 9.6% and 7.1% respectively as against MindTree average of 2.7%. In order to extract more from those clients, MT has Shareholding (%) started to engage in more onsite prospects, which has shown a volume & revenue uptick of 7.1% and 10% respectively. On client addition front, 19 new clients were added.
Outlook & Valuation: Q1 revenues were inline with our estimates. Margin improvement and bottom line came as a positive surprise. Aditya Birla Money revises their earnings upwards by 21.1% & 22.5% for FY13E & FY14E to factor in the rupee depreciation and margin improvement. Management softened its outlook to inline with industry growth for FY13E, which is quite achievable considering 3-3.5% growth on QoQ basis.
Even though, MT has moved up significantly by 62% vs benchmark ~11% on YTD basis, still it trades at a reasonable P/E valuation of 8.7x and 7.9x on its FY13E & FY14E EPS of Rs73.7 & Rs81.3 respectively. Considering the strong 12-15 months operating performance and still leaves further room for appreciation in performance, Aditya Birla Money reiterates their Accumulate rating. They continue to value MT at 9x on its one-year forward earnings with revised target price of Rs745.1.
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Aditya Birla Money formerly known as Apollo Sindhoori Capital Investments is a leading player in the broking space with nearly 15 years of experience. It became a part of Aditya Birla Group in March 2009, when the group acquired 76% of the company. The Company has a strong distribution network of over 800 own branches and franchisee network, a large customer base in excess of 1,80,000, a strong technology backbone and a range of products delivered through a robust online and offline model. The Company boasts of immense talent pool and vertical specialists which add to its positioning as a major player in this segment.
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