37187719 a Report on MindTree
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Transcript of 37187719 a Report on MindTree
INDIAN INSTITUTE OF MANAGEMENT LUCKNOW
A Project Report on
MindTree Ltd
Submitted to
Prof. Sangeeta Dhawan Misra
Submission Date: 30th July, 2010
Compiled by
Group 6 - Section D
Maurya| Navin| Nikhil| Nikhil|Nishtha
PGP26215| PGP26216| PGP26217| PGP26218| PGP26219
About the company
Started in 1999, MindTree Ltd., formerly MindTree Consulting Ltd, is an international information technology (IT) consulting and implementation company that delivers business solutions through global software development. It is structured into two business units: Research and Development (R&D) Services and IT Services.
MindTree went public in December 2006. MindTree IPO price band was fixed for Rs. 365 to Rs. 425. MindTree got listed on 7th March in BSE at more than Rs. 600 and crossed Rs. 1000 within few days of listing. MindTree was oversubscribed more than 100 times. However, recession in US in 2008 resulted in IT shares going down affecting MindTree also.
On August 18, 2009, MindTree celebrated its 10th Anniversary after completing 10 years of its journey, a very important milestone. MindTree has set aggressive target of reaching $1 billion USD by 2014. MindTree reported revenues of $272 million USD in 2010.
1. Service Portfolio
IT SERVICE:
• Application and Maintenance Services• Business Intelligence
• EAI & BPM (Enterprise Application Integration and Business Process Management)
INDEPENDENT TESTING:
• Testing CoE (Center of excellence)
• Test Consulting• Test Automation• Performance Testing• Specialized Testing
IMTS: (Infrastructure Management and Technical Support)
• Consulting and Implementation• Managed Services• Security Services• Technical Support
NEXT IN WIRELESS:• Wireless Products
• Business Intelligence• Business Technology Consulting• Enterprise Applications Services• Mainframe and System i• Infrastructure Management & Tech Support• Internet and Emerging Technologies• Microsoft Technologies• SAP Technologies• IT Application Testing
SOFTWARE PRODUCT ENGINEERING
• Product Development• Product Testing• Sustenance Engineering• Technical Support• Professional Services• Specialized Services
R&D SERVICES
• IP Led Services• Semiconductor and Hardware Engineering• Software Engineering• Product Testing• Video Surveillance Solutions
KNOWLEDGE SERVICES:
2. Industries
• Banking and Financial Services• Capital Markets• Energy• Insurance• Manufacturing• Media & Entertainment• Retail• Travel and Transportation• Independent Software Vendor (ISV)• Automotive• Communication Systems• Consumer Appliances and Computer Peripherals• Industrial Systems• Medical Electronics
3. Key Clients
4. Global Presence
5. Mergers and Acquisitions
• Acquired NOIDA based ASAP solutions in 2004 for all cash deal• Acquired Bangalore based Linc Software Services Pvt Ltd. in 2005 for stock and cash• Acquired Indian division of cosystems for all cash deal• Acquired Indian division of cosystems for all cash deal• Acquired TES-Purple Vision in December 2007• Acquired Pune based Alereon in 2008• Acquired Majority stake in Aztecsoft• Acquired Bangalore based Kyocera India Pvt Ltd.• Acquired Chennai based 7Strata : Remote IT Infrastructure Management Services
6. Services and Products in Pipeline • UID projects• Arcelor Mittal • AIG • N!mo – next in mobility• Hindustan Unilever limited• Silicon Valley Bank• Proctor and Gamble• Bluetooth protocol stack• Realogy• E-Bay• Fly Emirates
About the industry
IT Industry in India
The Indian Information Technology industry accounts for a 5.9% of the country's GDP and export earnings as of 2009, while providing employment to a significant number of its tertiary sector workforce. More than 2.3 million people are employed in the sector either directly or indirectly, making it one of the biggest job creators in India and a mainstay of the national economy. In March 2009, annual revenues from outsourcing operations in India amounted to US$60 billion and this is expected to increase to US$225 billion by 2020.
Key Companies
: Infosys, Wipro, TCS, Tech Mahindra
Major Hubs : Bangalore, Hyderabad, Chennai, Pune, Mumbai, NCR, Kolkata
Historical Analysis:-
Net Sales and Profit- MindTree (in Rs. Crores)
0
200
400
600
800
1000
1200
1400
Mar'06Mar'07Mar'08Mar'09Mar'10
Net Sales
Profit
Percentage Growth in Sales –Comparison:
MICROECONOMIC ANALYSIS
1. Return on capital employed (Labour Productivity) : Mind Tree being a service
based industry, labour is the major component of the capital. Rest of the elements
like infrastructure, utilities, etc. do not form a major share of the capital. Hence, this
can be assumed to be a good indicator of labour productivity over the years. Below
graph provides information on return on capital employed for Mind Tree and IT
industry. It is observed that as compared to the industry, Mind Tree is generating
better returns on its labour employed, over the last few years with an exception of
2004 & 2009, which can be attributed to it being in the starting phase of its
incorporation (2004) and the slowdown in the economy (2009).
2. Return on net worth (Overall Productivity): This is a key indicator of a firm’s overall productivity. Below graph provides information on return on net worth for Mind Tree and IT industry. It is observed that Mind Tree has good overall productivity as compared to the industry in all the years with 2009 being an exception owing to global recession. Thus it clearly shows Mind tree operating with increasing economies of scale.
3. Return on Equity (Profitability): This is assumed as an indicator of the profitability of a Firm. Below graph provides information on return on equity for Mind Tree over the years. It can be seen that during 2004-2006, Mind Tree has obtained increasing returns on equity, thus highlighting its growth phase and high profitability. Between 2007-2009, there is a downward trend in return on equity which can be due to the effects of global meltdown on its profits as its major customers comprises of clients in UK and USA. Again, as the economy revives it shows signs of growth in returns on equity which is a positive outlook for the firm.
4. Financial Ratio Analysis: Analysis of various ratios and comparison with industry averages provides a good benchmark for assessing the financial health of the firm. Below graph shows debt-equity ratio and current ratio for Mind Tree and IT industry. It can be seen that during initial years, Mind Tree has maintained high debt-equity ratio as compared to industry. However, in the last few years since it has gone public it has reduced its debt and raised equity through the issue of shares. Also it is observed that during initial years, MindTree has maintained high current ratio. However, over the years it has reduced its current ratio and averaged around industry numbers. This can attributed to its deployment of funds for M&A activities and investments in R&D.
Debt – Equity Ratio
Current Ratio
Calculation for Marginal revenue and Marginal Cost:-
Revenue Cost Quantity MR MC2005-06 448.8 394.59 22.7 - -2006-07 590.35 500.3 29.86 19.76 14.762007-08 733.84 629.66 37.11 19.79 17.842008-09 1012.57 982.56 51.21 19.76 25.022009-10 1233.25 1025.15 62.37 19.77 3.83
Revenue and cost in crore rupees
Quantity in the number of projects
MR in crore rupees per project
MC in crore rupees per project
Formulae used
TR=P*Q
Kept price constant and calculated the quantity
Profit=Revenue-cost...................... used to calculate cost
RETURN ON CAPITAL EMPLOYED
RETURN ON NET WORTH
GROWTH OF NET WORTH & CAPITAL EMPLOYED
GROWTH OF SALES & RETURN ON EQUITY
SWOT Analysis:
Positive Negative
Inte
rnal
En
vir
on
men
t Strengths• Leading edge in Wireless
Technology• Stronghold in the industry• Among top 5 global R&D Service
Providers• Low cost services as compared to
US and European counterparts• Considered among top companies to
work for by many consultancies: low attrition, higher productivity as compared to other counterparts
• No. Of large-scale live projects going on such as: providing application development, maintenance and support services for Aadhar, UID
Weaknesses• Low employee utilisation as compared to
peers• Markets largely restricted to Americas
and Europe• Comparatively low market share as
compared to giants like Infosys, Wipro, TCS
Exte
rnal En
vir
on
men
t Opportunities• Growing Wireless Technology
Sector in India• Better business opportunities with
the recovering global economy• Increasing presence in Europe• Restructuring in the industry might
help in keeping steps in new areas• Strong R&D ensures longevity and
better survival chances in the market
Threats• Rupee Appreciation might bring down
revenues• Rising costs in the industry• Rising attrition rates• Recent protectionist steps in its biggest
market i.e. US
Forecasting:
Based on the prevailing market and political conditions, a qualitative analysis of MindTree Ltd.’s future demand and revenues has been done.
Factor Consequence
Global Recovery
Most of the projects in MindTree are from companies based in Americas and Europe. The recovery post the global recession promises to bring more projects for the company from the West. Hence the demand and revenue at MindTree are expected to increase.
Rupee Appreciation
The value of Rupee is expected to increase over the coming few months. Since, MindTree is paid for its outsourced projects in dollar/euro/pound etc., the revenues might see a relative downward trend.
3-G Arrival in India MindTree has a niche speciality in wireless technology. The
arrival of 3-G opens possibilities for new projects in the wireless technology area. MindTree being a reputed firm in this technology stands good chances of procuring these projects.
Labour Trend MindTree’s recent announcement of hiring 3500 new employees suggests its internal predictions of growing demand in the near future.
Protectionist Scheme
A no. of protectionist measures has been put in place by the U.S. govt. such as the Visa fee hike. Since U.S. is MindTree Ltd.’s biggest market, this news suggests lesser no. of projects for MindTree in U.S. in the coming time.
UID The UID project has taken up pace in India. MindTree has a no. of projects in this area and the escalation of the UID project promises more such projects in the near future.
1. Challenges
• Global economy is still going through a transition period owing to the recession
• Only the best can survive in a highly challenging market like India
• Rising attrition rate is a big worry.
• Since MindTree is mostly serving international clients, the repercussions of a
meltdown in markets like the U.S. and the U.K. are deeply felt
• Managing the conflict between maintaining independence and safeguarding the
business interests becomes difficult. It is a challenge to ensure the desired quality in
the compressed time lines
• The prevailing economic crisis has curtailed IT spending significantly, forcing CIOs
to focus on reducing maintenance costs
• To add to the woes, the IT infrastructure is becoming more complex day by day,
making the management more complex and expensive. To achieve a balance between
the two is the real challenge to the organization
• The IT landscape is undergoing a transition. The manner in which software is built
and consumed is changing
2. Strategy
• MindTree has undergone a major restructuring as part of its growth plan
• MindTree has set up new Knowledge Services combining data services, analytics and
business intelligence. These services will help companies gain deeper insight into
their business, risk and opportunity areas, and customer behaviour for improved sales,
marketing and operational effectiveness
• MindTree has been a long-standing dominant player in Data Services and Business
Intelligence. By including Analytics, they have now completed the picture and are
ready for growth. Outsourced analytics should serve as a growth driver for the next
few years
• MindTree is aspiring to be the only product engineering services organization that
would cover end-to-end portfolio of products from chip to cloud
• MindTree to invest more in creating its own technology and products that can be
licensed to its customers. This will enable it to cut down costs and time to introduce
new products in the market
• MindTree's testing business unit is uniquely positioned to take advantage of the
opportunities in product testing
• MindTree's IMTS is the fastest growing business. As more and more enterprises look
for offshore-based production support, remote infrastructure management (RIM) will
gain momentum.
• MindTree is looking to help organizations overcome IT Infrastructure related
challenges by offering a common production support service that encompasses both
application and infrastructure by decreasing cost and increasing their efficiency
• MindTree is continuously investing in people, in training, in functional and technical
frameworks.
• As part of its on-going growth strategies, MindTree is serious about further
acquisitions. Some of the key areas where acquisition is expected in the future are
package application, product engineering and remote infrastructure management.
• MindTree plans to set up a subsidiary in China. The proposed facility is expected to
become operational in a month or two. The Chinese setup will provide a very good
combination of leveraging the Chinese manufacturing ecosystem, its market and
MindTree's software capability.
3. Recommendations
• MindTree should concentrate on Strategic partnerships and innovative technologies
should be able to reshape its existing markets
• MindTree should be adopting Continuous innovation and open mindedness for
strategic partnerships and technological sharing approach
• MindTree should identify appropriate marketing strategies and implement them on
the right scale
• MindTree should focus on human capital which will complement its strong
knowledge management function at the core level
• MindTree should be thinking of entering new market segments, setting up new
business units and allotting new roles for senior management which will fuel growth
in the long run
• MindTree should concentrate on making each of the Industry groups function as
independent companies, competing independently in the market to initiate rapid
growth in each segment By adopting this approach each unit will have its own sales
structure, hence will not be confined by overall budget constraints
• That next phase of development will include things like market research, digital
marketing and other high-end KPO offerings. MindTree should pay attention to these
growth domains
• MindTree should concentrate on building high intensity of the technical know-how
and the intellectual properties.
• MindTree should be aiming at building capability to test any product from Chip to
Cloud
• The midsized companies (Fortune 1,000 to 5,000) will explore the offshore support
for their applications and the infrastructure. This opens up immense potential to
MindTree to focus on midsized companies, specifically those clients who are
planning to offshore their infrastructure management for the first time. MindTree
should be building capabilities to tap these markets
• MindTree's success lies in its consulting and business-led approach. Rather than
looking at a problem as a technology implementation, MindTree should be
approaching it from a business requirement standpoint thus bringing the best solution
to the table
• MindTree should adopt people centric strategy. Through training, appreciation and
immersion in business situations, MindTree employees should be well equipped to
deal with the demands of its customers
• MindTree should intend to dig deeper into untapped areas in its current customer
relationships, it will create wider domain competency and create new markets and
broaden its reach by creating relationships with more customers across the world
• It is into services areas which have either a gap to be filled in or where there is further
scope for growth. Though MindTree has a reasonably large package application
business, there is still scope for further growth. This can be achieved by acquisition
• Infrastructure management services are becoming an attractive option to customers.
To leverage this opportunity, MindTree should focus on enhancing this area of
services too.
Some Facts About The Company
• During last 5 years, Average number of projects (sales revenue > $ 100 Million) executed by MindTree: 22.7
• Average billing rate for last 5 year: INR 3850
• Average Utilization rate for Last 5 years: 77 %
• Average Attrition rate: 10.7 %
Order Book Position
• UID projects - $ 350 million• Arcelor Mittal - $ 275 million• AIG - $ 300 million• N!mo – next in mobility - $ 75 million• Hindustan Unilever limited - $165 million• Silicon Valley Bank - $ 230 million• Proctor and Gamble - $ 115 million• Bluetooth protocol stack - $ 325 million (forecasted)• Realogy -$ 185 million• E-Bay - $ 225 million• Fly Emirates - $ 160 million