CMP 1430.00

Target Price 1585.00

ISIN: INE018I01017

APRIL 17th

2014

MINDTREE LIMITED Result Update: Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector IT

BSE Code 532819

Face Value 10.00

52wk. High / Low (Rs.) 1724.95/782.70

Volume (2wk. Avg.) 21000

Market Cap (Rs. in mn.) 59488.00

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 30316.00 36379.20 41836.08

EBITDA 6600.00 7488.74 8359.45

Net Profit 4512.00 5113.35 5756.54

EPS 108.20 122.92 138.38

P/E 13.22 11.63 10.33

Shareholding Pattern (%)

1 Year Comparative Graph

MINDTREE LTD S&P BSE SENSEX

SYNOPSIS

MindTree Ltd is a global information technology

solutions company with revenues of over USD 500

million.

FY14 has been a momentous year for Mindtree. It

crossed half a billion dollars in revenues, USD 100

million in operating profits and INR 100 of EPS.

In Q4 FY14, the company’s net profit jumps to Rs.

984.00 mn against Rs. 789.00 mn in Q4 FY14, an

increase of 24.71%.

Revenue for the quarter rose by 34.50% to Rs. 8237.00

mn from Rs. 6124.00 mn, when compared with the

prior year period.

EBIDTA is Rs. 1474.00 mn as against Rs. 1164.00 mn in

Q4 FY13, which is shown a growth of 26.63%.

As on March 31st, 2014, Company has 207 active

customers $5 million clients grow to 24; $1 million

clients grow to 73.

The Company has recommended a Final Dividend of

50% for the year ended March 31, 2014 and a Special

Dividend of 50% for completion of 15 years in

business.

The Company has also recommended an issue of bonus

shares in the ratio of 1:1.

Mindtree has announced a strategic alliance with

Pegasystems Inc., to develop and optimize custom BPM

solutions.

In FY14, the Company has no short term debts and

long term debts reduced by 16% to Rs. 27 mn from Rs.

32 mn in FY13.

Net Sales and PAT of the company are expected to

grow at a CAGR of 21% and 19% over 2013 to 2016E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Mind Tree Ltd 1430.00 59488.00 108.20 13.22 3.63 250.00

Mphasis Ltd 418.00 88270.80 25.20 16.67 2.37 170.00

Oracle Financial Services Software Ltd 3160.00 263960.10 134.91 23.25 3.62 0.00

HCL Technologies Ltd 1428.00 995860.30 69.61 20.45 9.73 600.00

Recommendation & Analysis - ‘BUY’

FY14 has been a momentous year for Mindtree. It crossed half a billion dollars in revenues, USD 100 million in

operating profits and INR 100 of EPS. For Q4 FY14, MindTree Ltd reported revenue of Rs. 8237.00 mn from Rs.

6124.00 mn in the prior year period, registered a growth of 34.5% y-o-y and decline of 4.2% q-o-q. The

company’s net profit jumps to Rs. 984.00 mn against Rs. 789.00 mn in Q4 FY14 (growth of 11% q-o-q / 24.71%

y-o-y). Profit before interest, depreciation and tax is Rs. 1474.00 mn as against Rs. 1164.00 mn in the

corresponding period of the previous year, which is shown a growth of 26.63%.

As on March 31st, 2014, Company has 207 active customers $5 million clients grow to 24; $1 million clients grow

to 73. Amongst the key businesses, the growth was well spread across IT services and PE Services (now Hi-Tech

vertical). BFSI increased by 44% y-o-y. Travel and Transportation increased by 33% y-o-y. Infrastructure

Management & Tech Support has posted a growth of 24% y-o-y. In FY14, the Company has no short term debts

and long term debts reduced by 16% to Rs. 27 mn from Rs. 32 mn in FY13.

MindTree has delivered broad-based growth in FY14, higher than in FY13. We expect that the company surplus

scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. Over

FY2012-15E, we expect the company to post a CAGR of 21% and 19% in its top-line and bottom-line respectively.

Hence, we recommend ‘BUY’ for ‘MindTree Ltd’ with a target price of Rs. 1585.00 for medium to long term

investment.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q4 FY14,

MindTree Ltd is a global information technology

solutions company to help business & societies

Flourish, reported its financial results for the

quarter ended 31st Mar, 2014.

Months Mar-14 Mar-13 % Change

Net Sales 8237.00 6124.00 34.50

PAT 984.00 789.00 24.71

EPS 23.60 19.01 24.12

EBITDA 1474.00 1164.00 26.63

The company’s net profit jumps to Rs. 984.00 million against Rs. 789.00 million in the corresponding quarter

ending of previous year, an increase of 24.71%. Revenue for the quarter rose by 34.50% to Rs. 8237.00 million

from Rs. 6124.00 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 23.60 a share during the quarter, registering 24.12% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 1474.00 millions as against Rs. 1164.00 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Rs. Millions

Q4 FY14 Q4 FY13

Employee Benefit Expenses 4869.00 3745.00

Depreciation 223.00 155.00

Other Expenses 1596.00 1216.00

Segment Revenue

Latest Updates

• Mindtree has announced a strategic alliance with Pegasystems Inc. the leader in Business Process

Management (BPM), to develop and optimize custom BPM solutions. The solutions will be based on

Pegasystems’ Build for Change® technology platform.

• Mindtree now provides application support and evolutionary maintenance services to SITA, the world's

leading specialist in air transport communications and IT solutions, for its new Strategic Finance System

(SFS) platform.

Multi-year and multi-million dollar wins with leading global clients:

• Leading global provider of share registry, pension administration, compliance reporting and analytics

solutions. Mindtree will provide application maintenance, testing and management reporting services

• Leading Telecommunications Company, which is an existing client. Mindtree is selected as its managed

services partner for maintenance of multiple datacenters that hosts its telecom business applications

• Leading global insurance company. Mindtree is chosen to provide application development & maintenance,

IMS and testing services

• Leading global provider of governance, risk and compliance management solutions. Mindtree will support its

cloud based platform

• Customers

207 active clients as of March 31, 2014 and $5 million clients grow to 24; $1 million clients grow to 73

• Employees

� Mind tree Ltd has 12,926 employees as of March 31, 2014

� Added 397 employees during the quarter on a gross basis

� Trailing 12 months attrition is at 12.7%

Awards

• Mindtree was ranked #1 under the categories ‘Best Managed IT/Software/Technology Company in Asia’ and

the ‘Best Managed Company in India’ for 2013 by Euromoney’s Annual Asia Company Ranking

• Mindtree is in the top 3 ranking in India, on all categories related to Corporate Governance & Investor

Relations by Asiamoney

Issue of bonus shares:

On the occasion of 15th anniversary and revenues crossing a significant milestone of half a billion dollars, the

Company recommended an issue of bonus shares in the ratio of 1:1, i.e. one additional equity share for every

existing equity share. This is subject to shareholders approval.

Dividend announcement:

• MindTree Ltd has recommended third interim dividend of 50% (Rs. 5/- per equity share of par value Rs. 10/-

each) for the fourth quarter ending March 31, 2014.

• The Company has also recommended a Final Dividend of 50% (Rs. 5 per equity share of par value Rs. 10/-

each) for the year ended March 31, 2014 and a Special Dividend of 50% (Rs. 5 per equity share of par value

Rs. 10/- each) for completion of 15 years in business.

Revenue by Geography (Q4 FY14)

Revenue by Service Offering (Q4 FY14)

Revenue Mix (Q4 FY14)

Client Contribution to Revenue (Q4 FY14)

COMPANY PROFILE

MindTree was incorporated in the year 1999 by a group of 10 industrial professionals who came from

Cambridge Technology Partners, Lucent Technologies and Wipro and this team was led by Ashok Soota. It has

formed successful business and technology alliances with big companies like Microsoft, Hewlett Packard, Oracle,

Bluetooth SIG, Intel, IBM, SAP, Orange, Sun Microsystems and many more.

MindTree is a global information technology solutions company with revenues of over USD 500 million. The

Company is structured into two business units Information Technology ('IT') Services and Product Engineering

('PE') Services. IT Services offer consulting and implementation and post production support for customers in

manufacturing, financial services, travel and leisure & other industries, in the areas of e-business, data

warehousing and business intelligence, supply chain management. PE Services provides full life cycle product

engineering, professional services & sustained engineering services.

It also enables faster product realization by leveraging the expertise in the areas of hardware design, embedded

software, middleware and testing and through its own IP building blocks in the areas of Bluetooth, VOIP, IVP6,

ISCSI and others in datacom, telecom, wireless, storage, industrial automation, avionics, consumer products and

computing.

MindTree Ltd to achieve Level 5 certification under both CMMI and PCMM models is undergoing certification

under the revised Software CMMI 1.2 version. MindTree has also undertaken a journey to get its IMTS business

Unit assessed and certified under the ISO 20000 standard. MindTree is certified under ISO 27001 standards for

Information Security Processes and Practices and under ISO 13485 for Medical Device Design.

Subsidiaries Company

• MindTree Software (Shanghai) Co. Ltd

Global Presence

• United States of America

• United Kingdom

• Japan

• Singapore

• Australia

• Germany

• France

• Switzerland

• Sweden

• UAE

• Netherlands

• Canada

• Belgium

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. Millions)

Balance Sheet as at March31, 2013 -2016E

MINDTREE LTD. FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 415.00 417.00 417.00 417.00

Reserves and Surplus 12722.00 15992.00 19510.24 23412.29

1. Sub Total - Net worth 13137.00 16409.00 19927.24 23829.29

Non Current Liabilities

Long term borrowing 32.00 27.00 25.38 23.35

Other Long term Liabilities 57.00 129.00 161.25 190.28

Long Term Provisions 0.00 39.00 42.90 46.33

2. Sub Total - Non Current Liabilities 89.00 195.00 229.53 259.96

Current Liabilities

Short term borrowing 217.00 0.00 0.00 0.00

Trade Payables 189.00 82.00 65.60 57.73

Other Current Liabilities 2166.00 2737.00 3120.18 3401.00

Short Term Provisions 1112.00 1574.00 1825.84 2044.94

3. Sub Total - Current Liabilities 3684.00 4393.00 5011.62 5503.67

Total Liabilities (1+2+3) 16910.00 20997.00 25168.39 29592.91

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 2485.00 3266.00 4049.84 4859.81

Intangible assets 104.00 170.00 224.40 264.79

Capital Work in Progress 571.00 496.00 446.40 473.18

a) Sub Total - Fixed Assets 3160.00 3932.00 4720.64 5597.78

b) Deferred Tax Asset 360.00 402.00 442.20 477.58

c) Non- Current Investments 244.00 189.00 158.76 180.99

d) Long Term loans and advances 617.00 758.00 879.28 976.00

e) Other non-current assets 1046.00 1039.00 1122.12 1178.23

1. Sub Total - Non Current Assets 5427.00 6320.00 7323.00 8410.57

Current Assets

Current Investment 4027.00 5160.00 6192.00 7182.72

Trade receivables 4508.00 6004.00 7491.51 9214.56

Cash and Bank Balances 1238.00 1175.00 1245.50 1345.14

Short-terms loans & advances 430.00 612.00 758.88 880.30

Other current assets 1280.00 1726.00 2157.50 2559.62

2. Sub Total - Current Assets 11483.00 14677.00 17845.39 21182.34

Total Assets (1+2) 16910.00 20997.00 25168.39 29592.91

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs. mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 23618.00 30316.00 36379.20 41836.08

Other Income 350.00 376.00 394.80 410.59

Total Income 23968.00 30692.00 36774.00 42246.67

Expenditure -19098.00 -24092.00 -29285.26 -33887.22

Operating Profit 4870.00 6600.00 7488.74 8359.45

Interest -10.00 -4.00 -3.12 -2.87

Gross profit 4860.00 6596.00 7485.62 8356.58

Depreciation -624.00 -809.00 -938.44 -1069.82

Profit Before Tax 4236.00 5787.00 6547.18 7286.76

Tax -847.00 -1275.00 -1433.83 -1530.22

Net Profit 3389.00 4512.00 5113.35 5756.54

Equity capital 415.00 417.00 416.00 416.00

Reserves 12722.00 15992.00 19510.24 23412.29

Face value 10.00 10.00 10.00 10.00

EPS 81.66 108.20 122.92 138.38

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs.in.mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 7696.00 7906.00 8237.00 8566.48

Other income 247.00 -189.00 128.00 134.40

Total Income 7943.00 7717.00 8365.00 8700.88

Expenditure -6097.00 -6362.00 -6891.00 -6947.42

Operating profit 1846.00 1355.00 1474.00 1753.46

Interest -2.00 -1.00 0.00 -0.95

Gross profit 1844.00 1354.00 1474.00 1752.51

Depreciation -197.00 -208.00 -223.00 -247.53

Profit Before Tax 1647.00 1146.00 1251.00 1504.98

Tax -360.00 -258.00 -267.00 -331.10

Net Profit 1287.00 888.00 984.00 1173.89

Equity capital 416.00 416.00 417.00 417.00

Face value 10.00 10.00 10.00 10.00

EPS 30.94 21.35 23.60 28.15

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 81.66 108.20 122.92 138.38

EBITDA Margin (%) 20.62% 21.77% 20.59% 19.98%

PBT Margin (%) 17.94% 19.09% 18.00% 17.42%

PAT Margin (%) 14.35% 14.88% 14.06% 13.76%

P/E Ratio (x) 17.51 13.22 11.63 10.33

ROE (%) 25.80% 27.50% 25.66% 24.16%

ROCE (%) 41.04% 45.08% 42.24% 39.53%

EV/EBITDA (x) 11.98 8.86 7.78 6.96

Book Value (Rs.) 316.55 393.50 479.00 572.80

P/BV 4.52 3.63 2.99 2.50

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1430.00, the stock P/E ratio is at 11.63 x FY15E and 10.33 x FY16E

respectively.

� Earnings per share (EPS) of the company for the earnings for FY15E and FY16E are seen at Rs.122.92 and

Rs.138.38 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 19% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 7.78 x for FY15E and 6.96 x for FY16E.

� Price to Book Value of the stock is expected to be at 2.99 x and 2.50 x respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.1585.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian Information Technology (IT) and Information Technology enabled Services (ITeS) sectors go hand-in-

hand in every aspect. The industry has not only transformed India’s image on the global platform, but also fuelled

economic growth by energising higher education sector (especially in engineering and computer science). The

industry has employed almost 10 million Indians and hence, has contributed a lot to social transformation in the

country.

Furthermore, Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make

their business processes efficient and streamlined. Indian manufacturing sector has the highest IT spending

followed by automotive, chemicals and consumer products industries.

Market Size

India's IT-business process outsourcing (BPO) industry revenue is expected to cross US$ 225 billion mark by

2020, according to a Confederation of Indian Industry.

India is expected to become world's second-largest online community after China with 213 million internet users

by December 2013 and 243 million by June 2014, according to the Internet and Mobile Association of India

(IAMAI) and IMRB International.

India’s total IT industry’s (including hardware) share in the global market stands at 7 per cent; in the IT segment

the share is 4 per cent while in the ITeS space the share is 2 per cent. India's IT and BPO sector exports are

expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87 billion, according to Nasscom.

Moreover, India plans to spend around US$ 3.9 billion on cloud services during 2013-2017, of which US$ 1.7

billion will be spent on software-as-a-service (SaaS), according the Gartner Inc.

The enterprise software market in India is expected to reach US$ 3.92 billion in 2013, registering a growth of

13.9 per cent over 2012 revenue of US$ 3.45 billion, according to Gartner.

Mumbai with 12 million internet users has emerged as the top most city in the country with highest penetration

of internet users, followed by Delhi (8.1 million) and Hyderabad (4.7 million), according to the Internet & Mobile

Association of India (IAMAI).

Investments

Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments

from major countries.

According to the Department of Industrial Policy and Promotion (DIPP), the computer software and hardware

sector has attracted foreign direct investment (FDI) worth Rs 54,347.88 crore (US$ 8.77 billion) between April

2000 and September 2013.

Some of the major investments in Indian IT and ITeS sector:

• Wipro plans to acquire US-based mortgage due diligence and risk management service provider Opus

Capital Markets Consultants (Opus CMC) for Rs 465 crore (US$ 75.07 million). Opus CMC provides

comprehensive risk management solutions to the mortgage industry in the US.

• Infosys has opened a new centre in Sydney, Australia. This is its fourth development centre in Australia

and has a capacity to seat 140 employees. Further, the company plans to hire 85 people in the region.

• Hitachi has acquired a foothold in India's payment space with the acquisition of Prizm Payment Services.

The firm has entered into share transfer agreements with Prizm shareholders, including Winvest

Holdings (India), Sequoia Capital and Axis Bank.

• Dell has opened its India design centre for its storage technologies and has realigned its domestic

research and development (R&D) unit. The facility will focus on developing software, integrating aspects

involving back-up of emails and related storage.

• Tata Consultancy Services (TCS) has launched a software development facility in Ahmedabad, Gujarat.

The facility will serve global customers across industry segments.

• Cognizant Technology Solutions has acquired ValueSource, a subsidiary of KBC Group, a Belgium-based

multi-channel bank insurance group.

• Schneider Electric has commissioned a services bureau in Bengaluru as a nerve centre and a support

facility for data centres in India and the Asia-Pacific region.

Government Initiatives

IT spending by the Government of India is projected to reach US$ 6.4 billion in 2013, a growth of 7 per cent year-

on-year, according to a report by Gartner.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:

• After a successful first-ever international delegation to Dubai, Gujarat-based small and medium

enterprises (SMEs) in the IT sector plan to send similar business delegations to European and South East

Asian countries.

• The Government of Karnataka plans to announce a new information technology (IT) policy to boost

investments in state’s tier-II and tier-III cities. The policy would enable the sector to employ about two

million people in the state directly by 2020.

• The Government of India has fast tracked the process of setting up of centres of National Institute of

Electronics and Information Technology (NIELIT) in Northeast India.

• The Government of Brazil has liberalised the issue of short term work visas, a move which will make it

easier for Indian IT professionals to take up assignments in Brazil.

• India and Vietnam have signed two memorandums of understanding (MoU) for partnership in the field of

information, communications and technology (ICT).

Road Ahead

Globalisation has a profound impact in shaping the Indian IT industry over the years with India capturing a

sizeable chunk of the global market for technology sourcing and business services. Over the years the growth

drivers for this sector have been the verticals of manufacturing, telecommunication, insurance, banking, finance

and of late the fledgling retail revolution. As the new scenario unfolds it is getting clear that the future growth of

IT and ITeS will be fuelled by the verticals of climate change, mobile applications, healthcare, energy efficiency

and sustainable energy. Traditional business strongholds would make way for new geographies, there would be

new customers and more and more of SMEs will go for IT application and services.

Demand from emerging countries is expected to show strong growth going forward. Tax holidays are also

extended to IT sector for software technology parks of India (STPI) and special economic zones (SEZs). Further,

the country is providing procedural ease and single window clearance for setting up facilities. The country’s cost

competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US continues to be

its USP in the global sourcing market.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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