CMP (Rs) 942.60

Target Price (Rs) 1037.00

ISIN: INE018I01017

July 20th

, 2013

MINDTREE LIMITED Result Update: Q1 FY14

BUYBUYBUYBUY

Stock Data

Sector IT

BSE Code 532819

Face Value 10.00

52wk. High / Low (Rs.) 966.20/611.00

Volume (2wk. Avg ) 6880.00

Market Cap ( Rs in mn ) 39117.90

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

Years FY13A FY14E FY15E

Net Sales 23618.00 27869.24 31770.93

EBITDA 4870.00 5958.85 6762.29

Net Profit 3389.00 4172.87 4791.63

EPS 81.66 100.55 115.46

P/E 11.54 9.37 8.16

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX MINDTREE LTD

SYNOPSIS

MindTree Ltd is global Information

Technology consulting & Implementation

Company that delivers business solutions

through global software development.

During the quarter, Company’s net profit

jumps to Rs. 1353.00 million against Rs.

890.00 million in the corresponding quarter

of previous year, an increase of 52.02%.

During the quarter ended, the company has

222 active customers as of June 30, 2013

and $10 million customers grow to 10.

MindTree has received a two multi-year

engagements with an existing customer who

is a world leader in the computer and

software technology industry and it will

provide support services for their developer

tools and cloud business.

MindTree has received a large multi-year

engagement with an existing customer in

the global financial services area.

Mindtree was listed in Top 100 best

companies to work for in India.

Net Sales and PAT of the company are

expected to grow at a CAGR of 18% and 30%

over 2012 to 2015E 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 942.60 39117.90 81.66 11.54 2.98 120.00

Wipro Ltd 390.75 962853.00 23.71 16.48 3.95 350.00

Oracle Financial Services Software Ltd 2778.30 233589.80 122.42 22.69 3.21 0.00

HCL Technologies Ltd 892.50 621285.40 41.89 21.31 9.41 600.00

Investment Highlights STANDALONE

Results updates- Q1 FY14,

Mind Tree Ltd is a global information technology

solutions company to help business & societies

Flourish, reported its financial results for the

quarter ended 30th June, 2013. The first quarter

witnesses a healthy increase in overall sales as well

as profitability of the company. This quarter’s

performance continues that trend and has been

encouraging both from a revenue and profitability

perspective.

Months Jun-13 Jun-12 % Change

Net Sales 6477.00 5630.00 15.04

PAT 1353.00 890.00 52.02

EPS 32.52 21.87 48.73

EBITDA 1308.00 1312.00 (0.30)

The company’s net profit jumps to Rs. 1353.00 million against Rs. 890.00 million in the corresponding quarter

ending of previous year, an increase of 52.02%. Revenue for the quarter increase 15.04% to Rs. 6477.00 million

from Rs. 5630.00 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 32.52 a share during the quarter, registering 48.73% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 1308.00 millions as against Rs. 1312.00 millions in the

corresponding period of the previous year.

Expenditure :

During the quarter Total Expenditure rose by 18 per

cent mainly on account of increase in Other

Expenses along with consideration of Depreciation

in the rupee impact. Total expenditure in Q1 FY14

was at Rs. 5467.00 million as against Rs. 4615.00

million in Q1 FY13. Other Expenses raised Rs.

1462.00 millions against Rs. 1014.00 millions in the

corresponding previous year. Employee Benefit

Expenses Rs. 3824.00 million and Depreciation is Rs.

181.00 million in Q1 FY14 are the primarily

attributable to growth of expenditure.

Segment Revenue

Latest Updates

• During the quarter, Mind tree Ltd has 29,032 shares upon exercise of stock options and restricted shares by

employees/ directors.

• Mindtree was listed in Top 100 best companies to work for in India. Mindtree ranked 40th among the 535

participating organizations, moving up 7 ranks as compared to last year according to The Economic times &

Great Place to Work® Institute.

• The company has maintained similar or better levels of dividend payout over the next few years in view of

the improved predictability and stability of the company's operations.

• Major clients win

� Two multi-year engagements with an existing customer who is a world leader in the computer and

software technology industry. Mindtree will provide support services for their developer tools and cloud

business.

� A large multi-year engagement with an existing customer in the global financial services area. Mindtree

will provide support services to their global business services and human resources technology portfolio.

� A large human capital management software and services company based in Europe. Mindtree has been

chosen as a strategic partner to provide a range of application, testing, BI and infrastructure services.

� An existing customer who is a leading general-use vehicle rental company. Mindtree has been chosen as a

system integration partner to build their next generation pan European digital platform.

• Customers

During the quarter ended, the company has 222 active customers as of June 30, 2013 and $10 million

customers grow to 10.

• Employees

Mind tree Ltd has 12,239 employees as of June 30, 2013 and 1,057 additional employees were added during

the quarter on a gross basis.

Revenue by Geography (Q1 FY14)

Revenue by Service Offering (Q1 FY14)

Revenue Mix (Q1 FY14)

Client Contribution to Revenue (Q1 FY14)

Total Headcounts (Q1 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 Ltd is an international Information Technology consulting & implementation company that delivers

business solutions through global software development. 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.

Services

• Agile

• Analytics and information Mgt

• Application development and maintenance

• Business process management

• Business technology consulting

• Cloud

• Digital business

• Enterprise application services

• Independent testing

• Infrastructure management services

• Mobility

• Product engineering

• Technologies.

Industries

• Banking • Capital markets

• Consumer and communications

• Consumer packaged goods

• Enterprise software

• Insurance

• Manufacturing

• Media and entertainment

• Retail

• Semiconductor

• Travel, hospitality and logistics.

Solutions

• Bluetooth

• Corporate lending

• Digital video surveillance

• Media planning and collaboration

• MindTest

• mKonnect

• mPromo

• mSales

Subsidiaries Companies

• MindTree Software (Shenzhen) Co. Ltd.

• MindTree Wireless Pvt. Ltd. Singapore.

Awards

• Mindtree has awarded ‘Best Corporate Governance India’, 2013 by World Finance magazine.

• The Company has ranked second in ‘Best Overall for Corporate Governance (in India)’ by Asia money and

topped the category of ‘Best for Investor Relations’ in India.

• The Company has ranked the third best software company under the category of “Financial Sustainability

Index”, as part of the BS 1000 list released by the Business Standard magazine in 2012.

• 2012 NASSCOM IT user award in ‘Social Media Adoption in an Enterprise’ category for the intranet

application, People Hub.

Clients

Manufacturing

Retail

Travel and Transportation

Independent Software Vendor (ISV)

Global Presence

• United States of America

• United Kingdom

• Japan

• Singapore

• Australia

• Germany

• France

• Switzerland

• Sweden

• UAE

• Netherlands

• Canada

• Belgium

Financial Highlight STANDALONE

Balance sheet as at March 31st, 2012-2015E

(A*- Actual, E* -Estimations & Rs. In Millions)

Particulars March (Rs.in.mn) FY12A FY13A FY14E FY15E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 415.00 415.00 415.00 415.00

Reserves and Surplus 9171.00 12722.00 16538.60 20673.25

1. Total Net worth 9576.00 13137.00 16953.60 21088.25

Non Current Liabilities

Long Term Borrowing 37.00 32.00 33.60 35.62

Other Long Term Liabilities 46.00 57.00 65.55 70.79

2. Total Non Current Libilites 83.00 89.00 99.15 106.41

Current Liabilities

Short Term Borrowings 407.00 217.00 162.75 138.34

Trade Payables 107.00 189.00 228.69 251.56

Other Current Liabilities 2455.00 2166.00 1971.06 1833.09

Short Term Provisions 724.00 1112.00 1223.20 1296.59

3. Total Current Libilites 3693.00 3684.00 3585.70 3519.57

Total Liabilities (1+2+3) 13352.00 16910.00 20638.45 24714.23

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 2548.00 2561.00 2791.49 3014.81

Intangible Assets Under Development 43.00 28.00 29.40 31.16

Capital Work in Progress 85.00 571.00 827.95 1175.69

a) Total Fixed Assets 2676.00 3160.00 3648.84 4221.66

b) Deferred Tax Asset 320.00 360.00 338.40 324.86

c) Non- Current Investments 30.00 244.00 331.84 424.76

d) Long Term Loans and Advances 544.00 617.00 678.70 733.00

e) Other Non-Current Assets 1028.00 1046.00 1161.06 1253.94

1. Total Non-Current Assets 4598.00 5427.00 6158.84 6958.22

Current Assets

Current Investment 3075.00 4027.00 5251.21 6742.55

Trade Receivables 4078 4508.00 4958.80 5256.33

Cash and Bank Balances 585.00 1238.00 1795.10 2405.43

Short-terms Loans & Advances 191.00 430.00 645.00 863.58

Other Current Assets 825.00 1280.00 1829.50 2488.12

2. Total Current Assets 8754.00 11483.00 14479.61 17756.01

Total Assets (1+2) 13352.00 16910.00 20638.45 24714.23

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 19152.00 23618.00 27869.24 31770.93

Other Income 188.00 350.00 385.00 408.10

Total Income 19340.00 23968.00 28254.24 32179.03

Expenditure -16023.00 -19098.00 -22295.39 -25416.75

Operating Profit 3317.00 4870.00 5958.85 6762.29

Interest -5.00 -10.00 -8.60 -9.03

Gross profit 3312.00 4860.00 5950.25 6753.26

Depreciation -695.00 -624.00 -661.44 -687.90

Profit Before Tax 2617.00 4236.00 5288.81 6065.36

Tax -430.00 -847.00 -1115.94 -1273.73

Net Profit 2187.00 3389.00 4172.87 4791.63

Equity capital 405.00 415.00 415.00 415.00

Reserves 9171.00 12722.00 16538.60 20673.25

Face value 10.00 10.00 10.00 10.00

EPS 54.00 81.66 100.55 115.46

Quarterly Profit & Loss Statement for the period of 31st Dec, 2012 to 30th Sep, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E

Description 3m 3m 3m 3m

Net Sales 5901.00 6124.00 6477.00 6800.85

Other Income 70.00 154.00 117.00 100.62

Total Income 5971.00 6278.00 6594.00 6901.47

Expenditure -4555.00 -5114.00 -4669.00 -5284.26

Operating profit 1416.00 1164.00 1925.00 1617.21

Interest -2.00 -1.00 -1.00 -1.23

Gross profit 1414.00 1163.00 1924.00 1615.98

Depreciation -151.00 -155.00 -181.00 -173.76

Profit Before Tax 1263.00 1008.00 1743.00 1442.22

Tax -275.00 -219.00 -390.00 -278.35

Net Profit 988.00 789.00 1353.00 1163.87

Equity capital 412.00 415.00 416.00 416.00

Face value 10.00 10.00 10.00 10.00

EPS 23.98 19.01 32.52 27.98

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 54.00 81.66 100.55 115.46

EBITDA Margin (%) 17.32% 20.62% 21.38% 21.28%

PBT Margin (%) 13.66% 17.94% 18.98% 19.09%

PAT Margin (%) 11.42% 14.35% 14.97% 15.08%

P/E Ratio (x) 17.46 11.54 9.37 8.16

ROE (%) 22.84% 25.80% 24.61% 22.72%

ROCE (%) 40.04% 41.04% 38.46% 34.87%

Debt Equity Ratio 0.05 0.02 0.02 0.01

EV/EBITDA (x) 11.47 7.83 6.31 5.47

Book Value (Rs.) 236.44 316.55 408.52 508.15

P/BV 3.99 2.98 2.31 1.85

Charts

Outlook and Conclusion

� At the current market price of Rs.942.60, the stock P/E ratio is at 9.37 x FY14E and 8.16 x FY15E

respectively.

� Earnings per share (EPS) of the company for the earnings for FY14E and FY15E are seen at Rs.100.55 and

Rs.115.46 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 30% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.31 x for FY14E and 5.47 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.31 x and 1.85 x respectively for FY14E and FY15E.

� 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. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.1037.00 for Medium to Long term investment.

Industry Overview

The information technology (IT) and information technology enabled services (ITeS) industry has been one of

the key driving forces fuelling India’s economic growth.

India is one of the fastest-growing IT services markets in the world, with three-quarters of large Indian

enterprises planning to increase IT spending in 2013, with an average IT budget of US$ 12.2 million, according to

a survey by Gartner.

The Indian IT-business process outsourcing (BPO) sector including the domestic and exports segments continue

to grow from strength to strength, witnessing high levels of activity both onshore as well as offshore. The

companies continue to move up the value-chain to offer higher end research and analytics services to their

clients. India's leadership position in the global IT and BPO industries are based primarily on the following

advantages.

Market Size

The Indian IT and ITES industry has continued to perform its role as the most consistent growth driver for the

economy. Service, software exports and BPO remain the mainstay of the sector. Over the last five years, the IT

and ITES industry has grown at a remarkable pace. A majority of the Fortune 500 and Global 2000 corporations

are sourcing IT and ITES from India and it is the premier destination for the global sourcing of IT and ITES

accounting for 55 per cent of the global market in offshore IT services and garnering 35 per cent of the ITES/BPO

market.

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.

The Indian IT infrastructure market is projected to grow by 9.7 per cent y-o-y to reach US$ 2.1 billion in 2013.

Nasscom has created a separate unit to drive its newfound enthusiasm for software products, and has set a target

of US$ 10 billion in revenues from software products by 2020.

Investments

EMC Corporation's investment in India is expected to reach US$ 1.5 billion by 2014. The company started its

journey in India with a modest investment of US$ 100 million in 2005.

Some of the major investments in the sector are as follows:

• D-Link plans to set up a testing lab in India in the second half of this year to ensure better localisation,

said Mr A P Chen, Chairman, D-Link

• Hexaware Technologies has set up an onshore delivery centre in Texas, US. The centre is its third onshore

delivery centre in the US

• NIIT Technologies has won a multi-year contract from the Airports Authority of India (AAI) worth Rs 344

crore (US$ 61.84 million) for the implementation of Airport Operations Control Centres (AOCC)

• The Software Technology Parks of India (STPI) plans to set up a data centre in Hyderabad. The centre will

address the storage and cloud needs of small and medium enterprises (SME)

• Wipro has signed an agreement to acquire a minority stake in Opera Solutions, a global big data and

analytics company, for about US$ 30 million

Government Initiatives

FDI up to 100 per cent under the automatic route is allowed in Data processing, software development and

computer consultancy services; Software supply services; Business and management consultancy services,

Market Research Services, Technical testing & Analysis services.

The Government of India's move to do away with the mandatory requirement of 10 hectares of minimum land

area for setting up an IT and ITeS special economic zones (SEZ) is expected to provide a major boost to the real

estate and IT sector.

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

• The Government of West Bengal plans to spend Rs 41 crore (US$ 7.37 million) to roll out citizen-centric

services electronically across 19 districts including Kolkata

• Kerala has set an ambitious target of becoming a cent per cent digital state in governance, said Mr P K

Kunhalikutty, Minister for Industries and Information Technology, Government of Kerala. The State has

around 600 small, medium and large IT firms employing over 80,000 professionals directly and nearly

three times the number indirectly

• The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims

to increase revenues of IT and ITES industry from US$ 100 billion to US$ 300 billion by 2020 and expand

exports from US$ 69 billion to US$ 200 billion by 2020

• The Government of India plans to set up 15 new laboratories for testing hardware and software products

under public-private partnership (PPP) model

• The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks,

that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and

payments towards investments should be made only through the electronic mode

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 STPI and SEZs. Further, the country is providing procedural ease and single window

clearance for setting up facilities.

Growth in offshoring is expected to outclass the growth in overall IT spend across the various verticals.

Offshoring as a per cent of total spend is also expected to rise across the various verticals. India has the

opportunity to tap the growing offshoring market with its cost advantage, expertise and huge talent pool.

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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