CMP 1424.75

Target Price 1630.00

ISIN: INE018I01017

OCTOBER 17th

2015

MINDTREE LIMITED Result Update (CONSO:IDATED BASIS): Q2 FY16

BUYBUYBUYBUY

Index Details

Stock Data

Sector IT Consulting & Software

BSE Code 532819

Face Value 10.00

52wk. High / Low (Rs.) 1605.00/967.00

Volume (2wk. Avg.) 29000

Market Cap (Rs. in mn.) 119394.05

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

YEARS FY15A FY16E FY17E

Net Sales 35619.00 44167.56 51234.37

EBITDA 7748.00 8812.13 10150.43

Net Profit 5363.00 6072.69 6880.48

EPS 64.07 72.47 82.11

P/E 22.24 19.66 17.35

Shareholding Pattern (%)

As on Sep 2015 As on Jun 2015

PROMOTER 13.76 13.71

FIIs 37.25 37.85

DIIs 7.33 7.39

OTHERS 41.66 41.05

1 Year Comparative Graph

MINDTREE LTD S&P BSE SENSEX

SYNOPSIS

MindTree Ltd delivers technology services and accelerates growth for Global 1000 companies by solving complex business challenges with breakthrough technical innovations.

Consolidated revenue for the quarter rose by 31.59% to Rs. 11693.00 mn from Rs. 8886.00 mn, when compared with the prior year period.

For Q2 FY16, consolidated net profit up by 15.14% to Rs. 1582.00 mn from Rs. 1374.00 mn in Q2 FY15.

During Q2 FY16, consolidated EBIDTA is Rs. 2295.00 mn as against Rs. 1894.00 mn in the corresponding period of the previous year, grew by 21.17%.

EPS of the company stood at Rs. 18.88 a share during the quarter, registering 14.86% increased over previous year period.

The company has 296 active clients as of September 30, 2015.

MindTree has recommended an interim dividend of Rs.4/- per equity share of par value Rs.10/- each for the second quarter ended September 30, 2015.

Mindtree has signed a Multi-year and multi-million dollar deal with a World leader in computer software and technology Company for provide operational and analytical services for their cloud platform.

Mindtree has signed a Multi-year and multi-million dollar deal with a Global interactive entertainment software Company for this existing client, Mindtree will provide sales analytics solutions.

Mindtree has been selected by Mölnlycke Health Care, a world-leading provider of single-use surgical and wound care solutions, to enhance business efficiency using the SAP application suite.

Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 19% over 2014 to 2017E 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 1424.75 119394.05 64.07 22.24 5.93 170.00

Zensar Technologies Ltd 973.75 43290.60 64.04 15.21 3.74 110.00

Oracle Financial Services Software Ltd 3921.50 332441.90 132.97 29.49 9.65 13300.00

Tech Mahindra Ltd 545.75 525242.20 27.77 19.65 4.29 120.00

QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q2 FY16,

MindTree Ltd is a global information technology

solutions company to help business & societies

Flourish, reported its financial results for the

quarter ended 30th Sep, 2015.

Months Sep-15 Sep-14 % Change

Net Sales 11693.00 8886.00 31.59

PAT 1582.00 1374.00 15.14

EPS 18.88 16.44 14.86

EBITDA 2295.00 1894.00 21.17

The company’s net profit up by 15.14% to Rs. 1582.00 million from Rs. 1374.00 million in the corresponding

quarter ending of previous year. Revenue for the quarter rose by 31.59% to Rs. 11693.00 million from Rs.

8886.00 million, when compared with the prior year period. Reported earnings per share of the company stood

at Rs. 18.88 a share during the quarter, registering 14.86% increased over previous year period. Profit before

interest, depreciation and tax is Rs. 2295.00 millions as against Rs. 1894.00 millions in the corresponding period

of the previous year.

Break up of Expenditure

Break up of

Expenditure

Rs. Millions

Q2 FY16 Q2 FY15 %

Change

Employee Benefit

Expenses 6868.00 5193.00 32%

Depreciation 317.00 235.00 35%

Other Expenses 2661.00 1938.00 37%

Segment Revenue

Latest Updates

• MindTree Ltd has recommended an interim dividend of 40% (Rs.4/- per equity share of par value Rs.10/-

each) for the second quarter ended September 30, 2015.

• Mindtree launched a state-of-the-art Global Learning & Delivery Center at Bhubaneshwar, Odisha.

• Mindtree has been selected by Mölnlycke Health Care, a world-leading provider of single-use surgical and

wound care solutions, to enhance business efficiency using the SAP application suite.

• Mindtree has announced a strategic partnership with Dubai-based flydubai to shape the full digital

experience of the connected traveler.

• Mindtree has partnered with MetricStream, the market leader in Governance, Risk, and Compliance (GRC), to

help simplify regulatory compliance for financial firms. Mindtree will leverage MetricStream’s Zaplet, a cloud-

based open platform to build, deploy and manage a variety of GRC applications for financial firms globally.

• The Company has been named a Top 10 Outsourcing Service Provider in USA and EMEA by Information

Services Group (ISG), a leading technology insights, market intelligence and advisory services company.

• The Group has acquired 100% of the equity interest in Bluefin Solutions Limited (‘Bluefin’), a leading UK

based IT solutions provider specializing in SAP HANA solutions, in an all cash transaction for GBP 42.3

million. The consideration includes an upfront payment of GBP 34 million and earn out of GBP 8.3 million

payable over the next three years. The transfer of equity interests and control of Bluefin is effective July 16,

2015 and consequently, Bluefin has become a 100% subsidiary of the Group effective that date.

• The Group also acquired 100% of the equity interest in Relational Solutions, Inc a US based IT solutions

provider specializing in technology services to the consumer goods industry, in an all cash transaction for

USD 8.6 million. The consideration includes an upfront payment of USD 7.1 million and earn out of USD 1.5

million payable over the next two years. The transfer of equity interests and control of Relational Solutions,

Inc is effective July 16, 2015 and consequently, Relational Solutions, Inc has become a 100% subsidiary of the

Group effective that date.

Clients

296 active clients as of September 30, 2015

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

• World leader in computer software and technology. For this existing client, Mindtree will provide operational

and analytical services for their cloud platform

• Global interactive entertainment software Company. For this existing client, Mindtree will provide sales

analytics solutions

• Global Communications Company. For this existing client, Mindtree is selected as the preferred partner for

providing development, analytics and testing services for its customer experience management product

Revenue by Geography

Revenue Mix

Client Contribution to Revenue

Revenue by Service Offering

COMPANY PROFILE

Mindtree Ltd delivers digital transformation and technology services from ideation to execution enabling Global

2000 clients to outperform competitors. Mindtree was ‘Born Digital’ and continues to bring extraordinary depth

across the entire digital value-chain. With a strong blend of expertise and execution, Mindtree delivers

remarkable customer experiences while driving greater efficiency and modernizing business operations.

Mindtree’s expertise in infrastructure and applications management, combined with the unique Agile Center-of-

Excellence, ensures that its clients release products and services to market faster and more cost-efficiently.

Global Presence

• United States of America

• United Kingdom

• Japan

• Singapore

• Australia

• Germany

• France

• Switzerland

• Sweden

• UAE

• Netherlands

• Canada

• Belgium

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

Balance Sheet as at March 31st, 2014 -2017E

MINDTREE LTD. FY14A FY15A FY16E FY17E

SOURCES OF FUNDS

Shareholder's Funds

Share Capital 417.00 837.00 838.00 838.00

Reserves and Surplus 15988.00 19287.00 23337.27 28238.10

1. Sub Total - Net worth 16405.00 20124.00 24175.27 29076.10

2. Share application money pending

allotment 0.00 4.00 4.00 0.00

Non Current Liabilities

Long term borrowing 27.00 23.00 19.78 17.41

Other Long term Liabilities 129.00 334.00 785.00 894.90

Long Term Provisions 39.00 0.00 0.00 0.00

3. Sub Total - Non Current Liabilities 195.00 357.00 804.78 912.31

Current Liabilities

Trade Payables 82.00 536.00 396.64 436.30

Other Current Liabilities 2738.00 3465.00 4365.90 4977.13

Short Term Provisions 1574.00 2063.00 1959.85 2038.24

4. Sub Total - Current Liabilities 4394.00 6064.00 6722.39 7451.67

Total Liabilities (1+2+3+4) 20994.00 26549.00 31706.44 37440.08

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 3266.00 4513.00 6950.81 8479.99

Intangible assets 170.00 1042.00 1542.16 1948.10

Capital Work in Progress 496.00 354.00 438.96 517.97

a) Sub Total - Fixed Assets 3932.00 5909.00 8931.93 10946.06

b) Non- Current Investments 175.00 8.00 16.50 17.99

c) Deferred Tax Asset 402.00 449.00 529.82 598.70

d) Long Term loans and advances 758.00 654.00 719.40 776.95

e) Other non-current assets 1039.00 1003.00 1123.36 1246.93

1. Sub Total - Non Current Assets 6306.00 8023.00 11321.01 13586.62

Current Assets

Current Investment 5160.00 5343.00 4220.97 4643.07

Trade receivables 6004.00 6963.00 9608.94 11722.91

Cash and Bank Balances 1184.00 3763.00 3386.70 3793.10

Short-terms loans & advances 613.00 836.00 1320.88 1624.68

Other current assets 1727.00 1621.00 1847.94 2069.69

2. Sub Total - Current Assets 14688.00 18526.00 20385.43 23853.45

Total Assets (1+2) 20994.00 26549.00 31706.44 37440.08

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs. mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 30316.00 35619.00 44167.56 51234.37

Other Income 376.00 656.00 596.96 620.84

Total Income 30692.00 36275.00 44764.52 51855.21

Expenditure -24216.00 -28527.00 -35952.39 -41704.78

Operating Profit 6476.00 7748.00 8812.13 10150.43

Interest -4.00 -1.00 -3.50 -2.63

Gross profit 6472.00 7747.00 8808.63 10147.81

Depreciation -809.00 -1018.00 -1323.40 -1561.61

Exceptional Items 120.00 179.00 350.50 280.40

Profit Before Tax 5783.00 6908.00 7835.73 8866.59

Tax -1275.00 -1545.00 -1763.04 -1986.12

Net Profit 4508.00 5363.00 6072.69 6880.48

Equity capital 417.00 837.00 838.00 838.00

Reserves 15988.00 19287.00 23337.27 28238.10

Face value 10.00 10.00 10.00 10.00

EPS 108.11 64.07 72.47 82.11

Quarterly Profit & Loss Statement for the period of 31st Mar, 2015 to 31st Dec, 2015E

Value(Rs.in.mn) 31-Mar-15 30-Jun-15 30-Sep-15 31-Dec-15E

Description 3m 3m 3m 3m

Net sales 9181.00 9816.00 11693.00 12511.51

Other income 304.00 167.00 131.00 138.86

Total Income 9485.00 9983.00 11824.00 12650.37

Expenditure -7395.00 -8082.00 -9529.00 -10184.37

Operating profit 2090.00 1901.00 2295.00 2466.00

Interest 0.00 0.00 -2.00 -0.70

Gross profit 2090.00 1901.00 2293.00 2465.30

Depreciation -295.00 -322.00 -317.00 -358.21

Exceptional Items -130.00 202.00 64.00 67.20

Profit Before Tax 1665.00 1781.00 2040.00 2174.29

Tax -378.00 -399.00 -458.00 -489.22

Net Profit 1287.00 1382.00 1582.00 1685.08

Equity capital 837.00 838.00 838.00 838.00

Face value 10.00 10.00 10.00 10.00

EPS 15.38 16.49 18.88 20.11

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 108.11 64.07 72.47 82.11

EBITDA Margin (%) 21.36% 21.75% 19.95% 19.81%

PBT Margin (%) 19.08% 19.39% 17.74% 17.31%

PAT Margin (%) 14.87% 15.06% 13.75% 13.43%

P/E Ratio (x) 13.18 22.24 19.66 17.35

ROE (%) 27.48% 26.65% 25.12% 23.66%

ROCE (%) 44.33% 43.51% 41.89% 40.26%

EV/EBITDA (x) 8.20 14.22 12.69 10.93

Book Value (Rs.) 393.41 240.43 288.49 346.97

P/BV 3.62 5.93 4.94 4.11

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1424.75, the stock P/E ratio is at 19.66 x FY16E and 17.35 x FY17E

respectively.

� Earnings per share (EPS) of the company for the earnings for FY16E and FY17E are seen at Rs.72.47 and

Rs.82.11 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 19% over 2014 to 2017E

respectively.

� On the basis of EV/EBITDA, the stock trades at 12.69 x for FY16E and 10.93 x for FY17E.

� Price to Book Value of the stock is expected to be at 4.94 x and 4.11 x for FY16E and FY17E respectively.

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. Hence, we recommend ‘BUY’ for ‘MindTree Ltd’ with a target price of Rs. 1630.00 for

medium to long term investment.

INDUSTRY OVERVIEW

India is the world's largest sourcing destination for the information technology (IT) industry, accounting for

approximately 67 per cent of the US$ 124-130 billion market. The industry employs about 10 million workforce.

More importantly, the industry has led the economic transformation of the country and altered the perception of

India in the global economy. India's cost competitiveness in providing IT services, which is approximately 3-4

times cheaper than the US, continues to be the mainstay of its unique selling proposition (USP) in the global

sourcing market. However, India is also gaining prominence in terms of intellectual capital with several global IT

firms setting up their innovation centres in India.

The IT-BPM sector in India grew at a Compound Annual Growth rate (CAGR) of 15 per cent over 2010-15, which

is 3-4 times higher than the global IT-BPM spend, and is estimated to expand at a CAGR of 9.5 per cent to US$ 300

billion by 2020.

India, the fourth largest base for new businesses in the world and home to over 3,100 tech start-ups, is set to

increase its base to 11,500 tech start-ups by 2020, as per a report by Nasscom and Zinnov Management

Consulting Pvt Ltd.

Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing by 33 per cent year-

on-year (y-o-y), as per a report by Gartner Inc.

Indian IT's core competencies and strengths have attracted significant investments from major countries. The

computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflows

worth US$ 17.575 billion between April 2000 and May 2015, according to data released by the Department of

Industrial Policy and Promotion (DIPP).

Government Initiatives

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

The Government of India has launched the Digital India program to provide several government services to the

people using IT and to integrate the government departments and the people of India. The adoption of key

technologies across sectors spurred by the 'Digital India Initiative' could help boost India's gross domestic

product (GDP) by US$ 550 billion to US$ 1 trillion by 2025, as per research firm McKinsey.

India and the United States (US) have agreed to jointly explore opportunities for collaboration on implementing

India's ambitious Rs 1.13 trillion (US$ 18.22 billion) ‘Digital India Initiative’. The two sides also agreed to hold

the US-India Information and Communication Technology (ICT) Working Group in India later this year.

Outlook

India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in

delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new

gamut of opportunities for top IT firms in India. Social, mobility, analytics and cloud (SMAC) are collectively

expected to offer a US$ 1 trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing

at a CAGR of approximately 30 per cent to around US$ 650-700 billion by 2020. The social media is the second

most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by 2020. The Indian e-

commerce segment is US$ 12 billion in size and is witnessing strong growth and thereby offers another attractive

avenue for IT companies to develop products and services to cater to the high growth consumer segment.

Disclaimer:

This document is prepared by our research analysts and it 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 we do not represent that

it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its 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. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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