RESULTS REVIEW 3QFY16

18 JAN 2016

Mindtree
BUY
INDUSTRY
IT
CMP (as on 18 Jan 2016) Rs 1,470
Target Price
Rs 1,665
Nifty

7,351

Sensex

24,118

KEY STOCK DATA

Bloomberg

MTCL IN

No. of Shares (mn)

84

MCap (Rs bn) / ($ mn)

123/1,821

6m avg traded value (Rs mn)

318

STOCK PERFORMANCE (%)

52 Week high / low
Absolute (%)
Relative (%)

Rs 1,605 / 1,151

3M
3.3
14.4

6M
16.0
31.0

12M
6.5
20.5

SHAREHOLDING PATTERN (%)

On cloud nine
Beating expectations, Mindtree delivered 2.3% QoQ
USD revenue growth (vs. our estimate of 1%), led by
onsite revenue (+5.9% QoQ). BFSI and travel grew 4%
and 15.2%. Mindtree saw a minimal revenue impact
due to the Chennai floods (0.1%).
On a CC basis, revenue growth was a healthy 3%,
which is impressive in a seasonally weak quarter. The
mid-sized IT firm continues to fire on all cylinders on
the revenue front and visibility remains excellent.
Mindtrees revenue growth remains highest among
mid-sized IT peers. We expect 22.5/20% USD revenue
growth in FY16E/FY17E. We expect the company to
comfortably maintain range-bound margins, along
with strong revenue growth. We forecast a healthy
16% EPS CAGR over FY15-FY17E.

FIIs

37.25

Retain BUY with a TP of Rs 1,665 based on 18x oneyear forward rolling EPS. We believe Mindtree
deserves a higher multiple for better growth and
superior revenue visibility.

Public & Others

41.66

Financial Summary

Promoters
FIs & Local MFs

Source : BSE

Harit Shah
haritj.shah@hdfcsec.com
+91-22-6171-7325
Amit Chandra
amit.chandra@hdfcsec.com
+91-22-6171-7345

13.76
7.33

(Rsmn)
Net Sales
EBIT
APAT
Diluted adj. EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

3QFY16
12,145
2,147
1,509
17.9

3QFY15
9,117
1,866
1,408
16.8

YoY (%)
33.2
15.1
7.2
7.1

Source: Company, HDFC sec Inst Research # Consolidated

Highlights of the quarter

Onsite volumes key driver: Onsite revenue has

been the key growth driver in the past several

quarters. In 3QFY16, it grew 5.9% QoQ and 48.1%
YoY (highest in seven years since 3QFY09).
Mindtree acquired Magnet 360 LLC, a Platinum
Salesforce partner. The company provides multicloud implementation and consulting services to
MFG, BFSI and media verticals. Mindtree will pay
US$ 37mn upfront, with US$ 13mn earn-outs in 2
years. Magnet 360s CY15 revenue was US$ 25mn.
Lower utilisation, wage hikes and one-time costs
on account of the Chennai floods hit EBIT margin
(down 96bps QoQ to 14.8%, our est of 15.7%).
Mindtree has recommended a 1:1 bonus.

Call takeaways: (1) 4QFY16 revenue growth will

be stronger than 3QFY16, while margin will be

higher ex-acquisitions, (2) The floods hit revenue
by 0.1%, (3) Deal wins were US $204mn, including
US $153mn renewals, and (4) Rostow Ravanan will
take over as CEO from April 1, 2016.

2QFY16 QoQ (%)

11,693
3.9
2,164
(0.8)
1,582
(4.6)
18.8
(4.7)

FY15
35,619
7,092
5,363
63.8
23.0
16.0
29.4

FY16E
46,570
8,352
6,102
72.6
20.2
13.6
27.5

FY17E
56,710
10,083
7,262
86.5
17.0
11.4
27.3

FY18E
64,356
11,694
8,291
98.7
14.9
9.4
26.1

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

MINDTREE: RESULTS REVIEW 3QFY16

Quarterly Consolidated Financials Snapshot

Onsite volume growth, led by
high onsite component in the
digital space, drove revenue
growth in a seasonally weak
quarter

Particulars (Rs mn)

Net Revenues (US $mn)
Net Revenues
Employee Costs
SG&A and Other Operating Expenses
EBITDA
Depreciation
EBIT
Interest Cost
Other Income
PBT
Tax
APAT
E/o (adj for tax)
RPAT

3QFY16
184.4
12,145
7,249
2,749
2,147
345
1,802
0
147
1,949
440
1,509
0
1,509

3QFY15
147.7
9,117
5,264
1,987
1,866
260
1,606
1
210
1,815
407
1,408
0
1,408

YoY (%)
24.8
33.2
37.7
38.3
15.1
32.7
12.2
(30.0)
7.4
8.1
7.2
7.2

2QFY16
180.3
11,693
6,868
2,661
2,164
317
1,847
2
195
2,040
458
1,582
0
1,582

QoQ (%)
2.3
3.9
5.5
3.3
(0.8)
8.8
(2.4)
(24.6)
(4.5)
(3.9)
(4.6)
(4.6)

Source: Company, HDFC sec Inst Research

Margin Analysis
EBIT margin declined 96bps
QoQ owing to lower
utilisation, wage hike impact
and one-time costs incurred
on account of the Chennai
floods

Particulars
Employee Cost % Net Revenues
SG&A and Other Expenses % Net Revenues
EBITDA Margin (%)
EBIT Margin (%)
Tax Rate (%)
APAT Margin (%)

3QFY16
59.7
22.6
17.7
14.8
22.6
12.4

3QFY15
57.7
21.8
20.5
17.6
22.4
15.4

YoY (bps)
195
84
(279)
(278)
15
(302)

2QFY16
58.7
22.8
18.5
15.8
22.5
13.5

QoQ (bps)
95
(12)
(83)
(96)
12
(110)

Source: Company, HDFC sec Inst Research

Page | 2

MINDTREE: RESULTS REVIEW 3QFY16

Onsite-Offshore Revenue Break-up

Aided by continuing strong
project starts, digital growth,
and acquisitions, onsite
revenue grew 5.9% QoQ

(QoQ, %)
Onsite
Offshore
IP revenue
Total

1QFY15
43.7
55.1
1.2
100.0

2QFY15
45.1
53.9
1.0
100.0

3QFY15
45.4
53.7
0.9
100.0

4QFY15
46.6
52.4
1.0
100.0

1QFY16
47.6
51.5
0.9
100.0

2QFY16
52.0
47.2
0.9
100.0

3QFY16
53.8
44.9
1.3
100.0

1QFY15
7.7
5.7
(7.4)
6.4

2QFY15
7.3
1.8
(10.1)
4.0

3QFY15
1.1
0.1
(8.4)
0.5

4QFY15
2.8
(2.4)
8.7
0.1

1QFY16
7.1
2.9
(1.5)
4.8

2QFY16
27.1
6.7
6.4
16.4

3QFY16
5.9
(2.5)
48.8
2.3

1QFY15
17.0
83.0
100.0

2QFY15
17.6
82.4
100.0

3QFY15
18.2
81.8
100.0

4QFY15
18.5
81.5
100.0

1QFY16
18.6
81.4
100.0

2QFY16
20.0
80.0
100.0

3QFY16
21.1
78.9
100.0

1QFY15
4.8
6.3
6.0

2QFY15
8.1
3.3
4.1

3QFY15
1.8
(2.2)
(1.5)

4QFY15
3.2
1.6
1.9

1QFY16
7.4
6.1
6.4

2QFY16
18.0
8.2
10.0

3QFY16
3.6
(3.1)
(1.8)

Source: Company, HDFC Sec Inst Research

Onsite contribution stands at

53.8% of revenue and we
expect this to continue to
expand led by digital and
acquisitions

Onsite-Offshore Revenue Growth

(QoQ, %)
Onsite
Offshore
IP revenue
Total
Source: Company, HDFC Sec Inst Research

Offshore revenue declined by

2.5% lead by furloughs and
seasonality

Onsite-Offshore Volume Break-up

(QoQ, %)
Onsite
Offshore
Total
Source: Company, HDFC Sec Inst Research

Overall growth was led by

onsite volume and pricing
increase of 3.6% and 2.2%,
respectively

Onsite-Offshore Volume Growth

(QoQ, %)
Onsite
Offshore
Total
Source: Company, HDFC Sec Inst Research

Page | 3

MINDTREE: RESULTS REVIEW 3QFY16

Vertical Revenue Break-up

Strong growth in BFSI was
heartening, coming as it did
on an already high base

Mindtree won multi-million

dollar deals in BFSI, travel and
manufacturing

A major positive was

impressive the growth in
travel and hospitality - fastest
QoQ growth since 4QFY12

(QoQ, %)
Manufacturing, CPG & Retail
BFSI
Travel & Hospitality
Hi-Tech & Media
Others
Total

1QFY15
21.2
22.7
16.4
32.7
7.1
100.0

2QFY15
21.6
22.8
17.0
32.7
5.8
100.0

3QFY15
22.2
23.5
16.2
32.7
5.4
100.0

4QFY15
21.7
25.0
16.0
32.6
4.7
100.0

1QFY16
22.0
26.4
15.5
31.7
4.3
100.0

2QFY16
20.6
24.7
13.9
30.4
10.4
100.0

3QFY16
20.4
25.1
15.6
30.2
8.7
100.0

1QFY15
2.1
4.0
11.4
10.2
0.2
6.4

2QFY15
6.4
4.4
8.4
4.0
(14.3)
4.0

3QFY15
2.9
3.4
(4.4)
0.7
(6.8)
0.5

4QFY15
(2.0)
6.4
(1.3)
(0.3)
(12.7)
0.1

1QFY16
6.5
10.6
1.6
2.0
(3.3)
4.8

2QFY16
8.7
9.0
4.1
11.6
179.4
16.4

3QFY16
1.1
4.0
15.2
1.6
(14.9)
2.3

Source: Company, HDFC Sec Inst Research

Vertical-wise Revenue Growth

(QoQ, %)
Manufacturing, CPG & Retail
BFSI
Travel & Hospitality
Hi-Tech & Media
Others
Total
Source: Company, HDFC Sec Inst Research

Page | 4

MINDTREE: RESULTS REVIEW 3QFY16

Service Line Break-up

Service line-wise, ADM,

testing and IMS witnessed
growth
Consulting continued to be
under pressure, with the fifth
consecutive QoQ decline in
revenue

Organic growth was healthy

at 3.4% QoQ in a seasonally
weak quarter

(QoQ, %)
ADM
Application Development
Application Maintenance
Consulting
Package Implementation
Independent Testing
IMS & Tech Support
IP Licensing
Engineering
Total
Digital/SMAC

1QFY15
44.8
24.2
20.6
3.8
5.4
15.7
18.9
1.7
9.7
100.0
31.8

2QFY15
45.2
24.0
21.2
4.2
5.4
15.5
18.7
1.6
9.4
100.0
33.0

3QFY15
45.1
23.7
21.4
4.1
5.8
15.4
17.6
1.6
10.4
100.0
33.0

4QFY15
44.0
23.2
20.8
3.9
7.5
15.4
17.5
1.7
10.0
100.0
32.2

1QFY16
46.1
24.4
21.7
3.7
7.2
14.9
17.7
1.4
9.0
100.0
34.7

2QFY16
44.2
23.2
21.0
2.8
13.3
12.8
17.0
1.3
8.6
100.0
36.6

3QFY16
43.5
23.7
19.8
2.6
12.9
12.8
18.1
1.8
8.3
100.0
36.1

1QFY15
3.9
10.5
(3.0)
6.4
40.1
0.0
8.1
64.4
5.3
6.4
0.0

2QFY15
5.0
3.2
7.1
15.0
4.0
2.7
2.9
(2.1)
0.8
4.0
8.0

3QFY15
0.3
(0.8)
1.4
(1.9)
7.9
(0.2)
(5.4)
0.5
11.2
0.5
0.5

4QFY15
(2.4)
(2.0)
(2.7)
(4.8)
29.4
0.1
(0.5)
6.3
(3.8)
0.1
(2.4)

1QFY16
9.8
10.2
9.3
(0.6)
0.6
1.4
6.0
(13.7)
(5.7)
4.8
12.9

2QFY16
11.6
10.7
12.6
(11.9)
115.0
(0.0)
11.8
8.1
11.2
16.4
22.8

3QFY16
0.7
4.5
(3.6)
(5.0)
(0.8)
2.3
8.9
41.6
(1.3)
2.3
0.9

Source: Company, HDFC Sec Inst Research

Service Line Growth

(QoQ, %)
ADM
Application Development
Application Maintenance
Consulting
Package Implementation
Independent Testing
IMS & Tech Support
IP Licensing
Engineering
Total
Digital/SMAC

Source: Company, HDFC Sec Inst Research

Page | 5

MINDTREE: RESULTS REVIEW 3QFY16

Geographic Revenue Break-up

The US clocked decent
revenue growth of 2.6% QoQ
largely led by digital and new
deal wins

(QoQ, %)
US
Europe
India
Rest of the World
Total

1QFY15
59.2
26.8
3.5
10.5
100.0

2QFY15
60.4
26.1
4.0
9.6
100.0

3QFY15
63.0
24.3
4.1
8.6
100.0

4QFY15
64.8
23.7
3.6
7.9
100.0

1QFY16
67.5
21.9
3.4
7.2
100.0

2QFY16
63.3
26.5
3.2
7.0
100.0

3QFY16
63.5
26.4
2.8
7.4
100.0

1QFY15
7.2
1.7
(0.1)
18.3
6.4

2QFY15
6.1
1.2
17.8
(5.0)
4.0

3QFY15
4.8
(6.3)
3.8
(9.9)
0.5

4QFY15
2.9
(2.2)
(13.1)
(8.1)
0.1

1QFY16
9.1
(3.3)
0.4
(4.1)
4.8

2QFY16
9.2
41.0
8.8
13.0
16.4

3QFY16
2.6
1.7
(11.6)
7.8
2.3

1QFY15
12,845
12,037
196
612
543

2QFY15
13,018
12,204
206
608
173

3QFY15
13,323
12,500
207
616
305

4QFY15
14,202
13,350
199
653
879

1QFY16
14,427
13,560
197
670
225

2QFY16
15,582
14,655
211
716
1,155

3QFY16
16,243
15,296
216
731
661

72.1
72.4

73.5
74.2

71.8
74.2

70.2
71.1

70.3
71.9

71.4
73.3

68.5
69.9

Source: Company, HDFC Sec Inst Research

Geographic Revenue Growth

Net additions stood at 661,
while utilisation ex-trainees
declined sharply to 69.9% due
to the Chennai floods impact
and lower working days in the
quarter

(QoQ, %)
US
Europe
India
Rest of the World
Total

Source: Company, HDFC Sec Inst Research

Headcount, Utilisation Data

(Nos.)
Total headcount
Software Professionals
Sales
Support
Net additions
Utilisation including trainees (%)
Utilisation excluding trainees (%)
Source: Company, HDFC Sec Inst Research

Page | 6

MINDTREE: RESULTS REVIEW 3QFY16

Key Assumptions
Particulars
Volume growth (%)
Pricing change (%)
USD revenue growth (%)
USD/INR rate
EBITDA margin (%)

FY14
13.3
1.3
15.1
60.44
17.5

FY15
13.4
3.0
16.4
61.01
17.1

FY16E
16.1
5.5
22.5
65.11
15.1

FY17E
11.2
7.9
20.1
66.00
15.2

FY18E
12.6
0.7
13.5
66.00
15.7

Source: Company, HDFC Sec Inst Research

Peer Valuation
Company
Cyient
eClerx
Mindtree
Hexaware
KPIT Tech.

Mcap
(Rs bn)
49
53
123
65
28

CMP
(Rs)
432
1,302
1,470
217
144

Source: HDFC sec Inst Research

Rating
NEU
BUY
BUY
BUY
BUY

TP
(Rs)
505
1,542
1,665
300
200

EPS (Rs)
FY15 FY16E FY17E
31.5 36.0 41.6
80.9 90.2 101.4
72.6 86.5 98.7
13.3 15.4 18.0
13.5 17.4 20.0

FY15
13.7
16.1
20.2
16.3
10.7

P/E (x)
RoE (%)
FY16E FY17E FY15 FY16E FY17E
12.0 10.4 17.5 17.9 18.6
14.4 12.8 41.4 37.6 35.7
17.0 14.9 27.5 27.3 26.1
14.1 12.1 30.0 32.0 34.4
8.3
7.2 19.7 21.2 20.3

Page | 7

MINDTREE: RESULTS REVIEW 3QFY16

Consolidated Income Statement

Year ending March (Rs mn)
FY14
Net Revenues (US $mn)
501.6
Growth (%)
15.1
Net Revenues
30,316
Growth (%)
28.4
Employee Costs
17,820
SG&A and Other Operating Expenses
6,396
EBITDA
6,100
EBITDA (%)
20.1
EBITDA Growth (%)
25.4
Depreciation
809
EBIT
5,291
Other Income
496
Interest
4
PBT
5,783
Tax (incl deferred)
1,275
Minority Interest and associate profit
0
RPAT
4,508
APAT
4,508
APAT Growth (%)
32.9
EPS
53.7
EPS Growth (%)
32.9
Source: Company, HDFC sec Inst Research

Consolidated Balance Sheet

FY15
583.8
16.4
35,619
17.5
20,747
7,780
7,092
19.9
16.3
1,018
6,074
835
1
6,908
1,545
0
5,363
5,363
19.0
63.8
19.0

FY16E
715.3
22.5
46,570
30.7
27,462
10,756
8,352
17.9
17.8
1,342
7,010
864
2
7,872
1,770
0
6,102
6,102
13.8
72.6
13.8

FY17E
859.2
20.1
56,710
21.8
33,453
13,174
10,083
17.8
20.7
1,479
8,604
860
2
9,462
2,200
0
7,262
7,262
19.0
86.5
19.0

FY18E
975.1
13.5
64,356
13.5
37,941
14,721
11,694
18.2
16.0
1,614
10,080
885
1
10,964
2,673
0
8,291
8,291
14.2
98.7
14.2

Year ending March (Rs mn)

FY14
SOURCES OF FUNDS
Share Capital - Equity
417
Reserves
15,988
Total Shareholders' Funds
16,405
Total Debt
32
Net Deferred Taxes
(402)
Long-term Provisions & Others
168
TOTAL SOURCES OF FUNDS
16,203
APPLICATION OF FUNDS
Net Block
3,436
CWIP
496
Investments
175
LT Loans & Advances, Others
1,797
Total Non Current Assets
5,904
Debtors
6,004
Cash & Equivalents
6,344
Other Current Assets
2,340
Total Current Assets
14,688
Creditors
257
Other Current Liabilities & Provns
4,132
Total Current Liabilities
4,389
Net Current Assets
10,299
TOTAL APPLICATION OF FUNDS
16,203
Source: Company, HDFC sec Inst Research

FY15

FY16E

FY17E

FY18E

837
19,291
20,128
28
(449)
334
20,041

837
23,396
24,233
28
(449)
334
24,146

837
28,206
29,043
28
(449)
334
28,956

837
33,555
34,392
28
(449)
334
34,305

5,555
354
8
1,657
7,574
6,963
9,106
2,457
18,526
754
5,305
6,059
12,467
20,041

9,322
354
8
1,657
11,341
9,161
8,891
2,457
20,510
1,010
6,694
7,704
12,805
24,146

9,402
354
8
1,657
11,421
11,653
12,798
2,457
26,908
1,232
8,141
9,374
17,535
28,956

9,398
354
8
1,657
11,417
13,224
17,994
2,457
33,675
1,392
9,395
10,787
22,888
34,305

Page | 8

MINDTREE: RESULTS REVIEW 3QFY16

Consolidated Cash Flow

Year ending March (Rs mn)
FY14
Reported PBT
5,783
Non-operating & EO items
(807)
Interest expenses
4
Depreciation
809
Working Capital Change
(1,766)
Tax paid
(1,297)
OPERATING CASH FLOW ( a )
2,726
Capex
(1,517)
Free cash flow (FCF)
1,209
Investments
(723)
Non-operating income
496
INVESTING CASH FLOW ( b )
(1,744)
Debt Issuance
(252)
Interest expenses
(4)
FCFE
953
Share capital Issuance
63
Dividend
(924)
FINANCING CASH FLOW ( c )
(1,117)
NET CASH FLOW (a+b+c)
(135)
Non-operating and EO items
1,200
Closing Cash & Equivalents
6,344
Source: Company, HDFC sec Inst Research

Key Ratios
FY15
6,908
(1,267)
1
1,018
488
(1,545)
5,603
(2,815)
2,788
167
835
(1,813)
(4)
(1)
2,783
420
(1,685)
(1,270)
2,520
242
9,106

FY16E
7,872
(864)
2
1,342
(553)
(1,770)
6,029
(5,109)
920
0
864
(4,245)
0
(2)
918
0
(1,997)
(1,999)
(215)
0
8,891

FY17E
9,462
(860)
2
1,479
(822)
(2,200)
7,061
(1,560)
5,501
0
860
(700)
0
(2)
5,500
0
(2,452)
(2,454)
3,907
0
12,798

FY18E
10,964
(885)
1
1,614
(158)
(2,673)
8,864
(1,609)
7,255
0
885
(724)
0
(1)
7,253
0
(2,943)
(2,944)
5,195
0
17,994

PROFITABILITY (%)
EBITDA Margin
APAT Margin
RoE
RoIC or Core RoCE
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Net Debt/EBITDA (x)
Net Debt/Equity (x)
Interest Coverage (x)
PER SHARE DATA
EPS (Rs/sh)
CEPS (Rs/sh)
DPS (Rs/sh)
BV (Rs/sh)
VALUATION
P/E
P/BV
EV/EBITDA
OCF/EV (%)
FCF/EV (%)
FCFE/mkt cap (%)
Dividend Yield (%)

FY14

FY15

FY16E

FY17E

FY18E

20.1
14.9
30.5
28.2
27.9

19.9
15.1
29.4
27.0
25.8

17.9
13.1
27.5
23.2
24.5

17.8
12.8
27.3
25.4
24.8

18.2
12.9
26.1
27.7
24.0

22.0
3.9
72
4
68
(1.0)
(0.4)
1,322.8

22.4
3.3
71
10
62
(1.3)
(0.5)
6,074.0

22.5
2.9
72
10
62
(1.1)
(0.4)
3,048.0

23.3
3.2
75
10
65
(1.3)
(0.4)
4,987.9

24.4
3.4
75
10
65
(1.5)
(0.5)
8,765.6

53.7
63.6
25.0
196.2

63.8
76.3
17.0
240.7

72.6
89.0
19.0
289.8

86.5
104.5
25.1
347.3

98.7
118.5
30.1
411.3

27.4
7.5
19.1
2.3
1.0
0.8
1.7

23.0
6.1
16.0
4.9
2.5
2.3
1.2

20.2
5.1
13.6
5.3
0.8
0.7
1.3

17.0
4.2
11.4
6.1
4.8
4.5
1.7

14.9
3.6
9.4
8.0
6.6
5.9
2.0

Source: Company, HDFC sec Inst Research

Page | 9

MINDTREE: RESULTS REVIEW 3QFY16

RECOMMENDATION HISTORY
Date
20-Jan-15
16-Jul-15
8-Oct-15
15-Oct-15
18-Jan-15

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

TP

Aug-15

Jul-15

Jun-15

Apr-15

Mar-15

Feb-15

Jan-15

1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900

May-15

Mindtree

CMP
1,415
1,229
1,429
1,403
1,470

Reco
NEU
BUY
BUY
BUY
BUY

Target
1,418
1,408
1,632
1,665
1,665

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 10

MINDTREE: RESULTS REVIEW 3QFY16

Disclosure:
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Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
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Institutional Equities
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Page | 11