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19 January 2017

3QFY17 Results Update | Sector: Technology

MindTree
BSE SENSEX S&P CNX
27,309 8,435
CMP: INR485 TP: INR530(+9%) Neutral
Bloomberg MTCL IN
Equity Shares (m) 50 Deal wins strong, top clients and visibility not so
M.Cap.(INRb)/(USDb) 38.9 / 0.8 Continued revenue pressure: MTCLs 3QFY17 revenue declined 0.4% QoQ
52-Week Range (INR) 804 / 400
(+0.4% QoQ CC), in line with our estimate, led by project cancellations,
1, 6, 12 Rel. Per (%) -7/-11/-45
Avg Val, INRm 374 slower ramp-up at large clients and continued weakness in acquired entities.
Free float (%) 86.3 With softness in top clients expected to continue, growth is not likely to pick
up in 4Q. Clarity on the FY18 outlook remains elusive, partly negating
Financials & Valuations (INR b) confidence that deal wins could support growth recovery.
Y/E Mar 2016 2017E 2018E but deal wins touching new highs: Deal wins clocked USD314m in 3QFY17,
Net Sales 46.9 52.3 58.6
as against four-quarter average of USD222m, taking LTM deal wins to
EBITDA 8.3 7.1 8.5
PAT 6.0 4.2 5.7
~USD1b (+30% YoY). That said, it came on the back of a sluggish September
EPS (INR) 35.9 25.1 33.7 quarter and, consequently, 2HCY16 TCV of USD497m matches 1Hs
Gr. (%) 12.4 -29.9 34.2 USD501m. 34% of TCV in the quarter came from Digital, with many of the
BV/Sh (INR) 142.4 151.2 170.5 deals channeled through third-party advisers. Average deal sizes in Digital
RoE (%) 27.4 17.1 21.0 continue to inch up, now at ~USD900k for new clients.
RoCE (%) 30.6 19.6 22.8
Profitability beat on lower headcount and SGA: EBITDA margin expanded
P/E (x) 13.5 19.2 14.3
P/BV (x) 3.4 3.2 2.8 90bp (v/s est. of flat margins) led by SGA optimization. PAT grew 8.8% QoQ
to INR1b (v/s est. of INR1.1b). While revenue revival remains the key, other
levers to achieve growth are offshoring, lesser sub-contracting, large
Estimate change transformational deals to tackle pricing pressure, and improved profitability
TP change in Bluefin and Magnet360.
Rating change Valuation view: We cut earnings by 6.9%/0.2% for FY18/19E to factor in
delay in revenue recovery and consequent lowering of FY17E exit rate. While
MTCL is an attractive long-term Digital play, greater confidence in the same
will be a function of traction in revenues, especially from top clients. Valuing
it at 14x FY19E earnings, we maintain Neutral with a revised TP of INR530.
Quarterly Performance (Consolidated)

Ashish Chopra (Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530


Sagar Lele (Sagar.Lele@MotilalOswal.com); +91 22 6129 1531
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
MindTree

Cancellations and slower ramp-ups weigh upon revenue growth


MTCLs 3QFY17 revenue declined 0.4% QoQ to USD192m, compared to our
estimate of USD193m. In CC terms, revenue growth stood at 0.4% QoQ.
Revenue growth pressure was expected in 3Q, with it being a function of project
cancellations, slower ramp-up at a few large clients and continued weakness in
Bluefin.
The near-term weakness in outlook is expected to continue in 4Q too, with
acceleration in revenue growth likely from the beginning of FY17.
Exhibit 1: Revenue in line with expectations

Revenue (USD m) QoQ Growth (%)


8.1
6.4 5.7
5.4

192.2
193.0
4.2 4.5 4.0 4.4
2.5 2.3 2.1
0.5 0.1 -0.4
117.7

124.0

127.1

132.8

141.3

147.0

154.3

166.8

184.4

195.0

199.0
-3.0

3QFY15 147.7

4QFY15 147.8
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
Source: MOSL, Company

Deal wins continue displaying relative strength


Deal wins clocked USD314m during the quarter against a four-quarter average
of USD222m, taking LTM deal wins to ~USD1b a growth of 30% YoY.
That said, it came on the back of a sluggish September quarter, and
consequently 2HCY16 TCV of USD497m matches 1Hs USD501m.
34% of the TCV of deals won in the quarter were in Digital, with many of them
channeled through third-party advisers. Average deal sizes in Digital continue to
inch up, now at ~USD900k for new clients.

Profitability: EBITDA margins beat estimates


EBITDA margin expanded 90bp QoQ to 13.4%, compared to our estimate of
flattish margins. Our estimate of flat margins was based on lack of revival of
revenue growth in 3Q.
While gross margins remained flat QoQ, SGA expenses inched up by 90bp (as a
percentage of sales) leading to the margin beat.
Exhibit 2: Margin beat after four consecutive quarters of decline

EBITDA margin (%) SGA (%)


22.6 21.4 21.3 24.0 22.8 22.6
22.2 21.8 21.8 21.7 21.3 22.3 21.7 20.7
19.4

18.4 20.8 19.5 21.5 20.0 19.8 20.5 19.5 17.1 18.5 17.7 16.7 14.7 12.5 13.4
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

Source: MOSL, Company

19 January 2017 2
MindTree

Utilization excluding trainees was down 80bp to 72.3% while utilization


including trainees was down by 10bp at 71.3%. The quarter saw a net decline of
120 people to 16,099.

Exhibit 3: Utilization excl. trainees down by 80bp QoQ


Incl. Trainees (%) Excl. Trainees (%)
76

73

70

67

64
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
Source: MOSL, Company

While volume declined by 3% QoQ during the quarter, pricing declined by 1%


QoQ.
Onsite volume was down 2.2% and offshore volume declined by 3.2% QoQ.
In terms of pricing, while onsite grew by 0.6% QoQ, there was a decline of 3.3%
seen in offshore pricing.

Exhibit 4: Onsite composition has increased heavily in the last few quarters
Onsite (% of revenue) Offshore (% of revenue)
100%
80% 48% 46% 42% 41% 41% 40%
61% 59% 57% 56% 56% 54% 54% 53% 52%
60%
40%
52% 55% 58% 60% 59% 60%
20% 39% 41% 43% 44% 44% 46% 46% 47% 48%
0%
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

Source: MOSL, Company

PAT for the quarter was INR1b, +8.8% QoQ, versus our expectation of INR1.1b,
growth of 11.6% QoQ. The miss was led by lower other income.

Pockets of growth seen in the portfolio


Revenue decline was seen across all verticals, with the most gravely impacted
being Travel & Hospitality (-6.9% QoQ), followed by BFSI (-3.8% QoQ).

Exhibit 5: Growth seen in Travel & Hospitality post steep decline in the previous quarter
Contr to Growth - Contr to incr.
Verticals 4 Qrtr CQGR
Rev. (%) QoQ (%) rev (%)
Technology, Media and Services 36.7 -0.4 -37 6.1
BFSI 24.1 -2.8 -169 0.0
Retail, CPG & Manufacturing 24.1 -0.8 -48 5.4
Travel & Hospitality 15.1 4.4 154 0.2
Source: MOSL, Company

19 January 2017 3
MindTree

Among Services, Development (-0.4% QoQ), Maintenance (-1.5% QoQ) and


Package Implementation (-5.7% QoQ) saw a decline. Growth during the quarter
was driven by IMS (+8% QoQ), which constituted 67% of incremental revenues.

Exhibit 6: Growth led by Consulting, IMS and IP licensing


Contr to Growth - Contr to incr.
Services 4 Qrtr CQGR
Rev. (%) QoQ (%) rev (%)
Development & Engg 31.8 -0.4 -32 0.9
Maintenance 17.6 -1.5 -66 -1.9
Consulting 3.9 2.2 20 11.8
Package Implementation 12.4 -5.7 -181 0.0
Independent Testing 12.6 1.2 35 0.6
IMS 20.3 1.6 76 4.0
IP Licensing 1.4 16.2 47 -5.1
Source: MOSL, Company

Among geographies, US grew 1.2% QoQ but Europe declined 3.2%, India by
11.8% and APAC by 1.7%

Exhibit 7: Europe under pressure


Contr to Rev. Growth - QoQ Contr to incr.
Geographies 4 Qrtr CQGR
(%) (%) rev (%)
US 68.7 1.2 197 3.0
Europe 20.8 -3.2 -166 -4.8
India 3.1 -11.8 -100 4.6
RoW 7.4 -1.7 -32 1.0
Source: MOSL, Company

Takeaways from management commentary


Performance in 3Q: Revenue growth was strong in some areas in 3Q. In terms of
geographies, while Europe declined in USD terms, this was largely on account of
cross-currency headwinds. In constant currency terms, Europe was stable QoQ.
The quarter saw robust deal wins, with the strongest signings in the history of
MTCL.
Outlook for 4Q: Revenue growth for MTCL in 4Q is expected to be similar to
that in 3Q. More clarity on client budgets is expected to emerge in a couple of
months. Some large customers have been facing challenges in their own
business, in an environment of political and macroeconomic uncertainty.
Margins are likely to be stable given the trajectory on revenue growth.
Bluefin issues persist: The restructuring in Bluefin has been progressing well.
The sales team at Bluefin has now been aligned to Mindtrees verticals. The
acquisition has fit in well with Mindtrees strategy, and gets substantiated from
the fact that two deal wins during the quarter were influenced by Bluefin. While
short-term challenges continue in Bluefin, its services are being expanded in the
US and in mainland Europe in order to mitigate it.
Profitability likely to improve in the medium term: The management indicated
expectations of margin improvement going forward, especially with the seizure
of revenue decline starting next quarter. Higher utilization, cost optimization in
travel expenses, reduced dependency on subcontractors, higher offshoring, and
improved profitability in acquisitions are likely to result in improved margins
going forward.

19 January 2017 4
MindTree

Change in estimates
We have adjusted our revenue estimates to factor the flattish trend likely in 4Q,
which in turn impacts the exit rate for FY17E. We now model 7.8/10.1% USD
revenue growth over FY18/19E.
We have also cut our EBITDA margin estimates for FY18E to 14.5% (-90bp
compared to earlier) to factor the delayed recovery, and continued pressure in
Bluefin. Consequently, our earnings cut is to the tune of 6.9/0.2% for FY18/19E.
Exhibit 8: Change in estimates
Revised Earlier Change
FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
INR/USD 67.3 70.0 70.4 67.3 70.0 70.4 0.0% 0.0% 0.0%
USD Revenue (m) 777 838 922 781 861 968 -0.6% -2.8% -4.7%
USD Rev growth (%) 8.6 7.8 10.1 9.2 10.2 12.4 -63bp -241bp -230bp
EBITDA Margin (%) 13.5 14.5 14.5 13.5 15.4 14.3 1bp -89bp 26bp
EBIT Margin (%) 9.6 10.8 10.7 9.6 11.7 10.7 3bp -95bp 5bp
EPS (INR) 25.1 33.7 38.1 26.6 36.2 38.1 -5.5% -6.9% -0.2%
Source: Company, MOSL

Valuation and view


MTCL has been a focused mid-tier company with play on select verticals (BFSI,
Retail, Travel, Hi-Tech) and services (Digital, IMS, ADM). Its pragmatic strategy
has been backed by strong execution, which has helped the company grow
above industry in its IT Services business at a CAGR of 17% over FY10-15.
The company remains actively focused on Digital, which continues to grow
ahead of company average. Proportion of Digital to overall revenues has
increased to 39% in 3QFY17, from 36% a year ago. MTCL has been investing to
improvise its early mover advantage in Digital through 4 acquisitions in the last
one year - around P&C Insurance, SAP HANA, CPG analytics and Salesforce. We
believe that acquisitive intent is the right approach in the Digital opportunity,
and that it will help a player of MTCLs scale to keep extracting opportunities to
grow its share of clients wallet.
With continued traction in Digital / SMAC, MTCL should continue to grow at the
higher end of the industry band if not better barring risk of slowdown in one
or more of its top accounts. ~40% revenue exposure to Digital augurs well for
companys growth, and the company continues to actively invest in building
capabilities and leadership in this area. Moreover, Digital is becoming a key
aspect in mining existing accounts, and in getting an entry-point into new ones.
At 14.3/12.7x FY18/19E, EPS, the stock trades well above the average across its
listed history (9 years). We expect the company to grow its USD revenues at a
CAGR of 8.8% over FY16-19E and EPS at a CAGR of 2.0% during this period.
Although it has multiple margin levers in place, especially with current SGA run
rate of ~22% above other companies, and utilization including trainees at ~70%
below peers; pricing pressure in traditional services, and the onsite-centric
nature of incremental business are likely to cap margin expansion.
A premium to historical average is explained by: [1] the turnaround following
unfruitful past acquisitions, [2] strong execution in IT Services driving confidence
of above-industry growth, and so also strong book-to-bill in the last four
quarters and [3] capabilities and expansion in Digital.

19 January 2017 5
MindTree

However, the company has been facing pressure from multiple areas (client-
specific issues, spending delays by clients, project cancellations and pricing
pressure) that have been weighing upon overall performance both in terms of
revenue and profitability. These issues have resulted in sub-par organic growth
in FY17, and sharp reduction in margins despite the superior revenue mix
compared to peers. We expect these pressures to keep valuations under check
despite the favorable positioning of the company. Our one-year forward target
price of INR530 discounts FY19E EPS by 14x. Maintain Neutral.

Key triggers
Uptick in margins on SGA rationalization and utilization expansion
Steady increase in revenue contribution from Digital
Faster uptick in BFSI/Retial & CPG

Key risk factors


Continued pressure from delayed project ramp-ups and project cancellations
Weakness in top clients
Pricing decline in traditional deals renewal

Exhibit 9: 1-year forward PE band Exhibit 10: 1-year forward PB band


PE (x) Peak(x) Avg(x) Min(x) PB (x) Peak(x) Avg(x) Min(x)
30 27.3 5.5
25 5.3
4.5
20
12.7 15.2 3.5 3.1
15 2.6
10 2.5

5 1.5
0.6
4.0
0 0.5
Jul-15

Jul-15
Jun-11

Nov-12

Jun-11

Nov-12
May-07

May-07
Mar-14

Dec-16

Mar-14

Dec-16
Feb-10

Feb-10
Oct-08

Oct-08

Source: MOSL Source: MOSL

19 January 2017 6
MindTree

Story in charts
Exhibit 11: LTM deal wins up 30% YoY Exhibit 12: ..driven by Digital/SMAC based revenues

Deal Wins (USDm) Digital Revenues


314 In USD m % of Revenues
281
36.6 36.1 38.6 39.9 40 39.4
207.9 193 204 220 32 32 33 33 32 34.7
165 165 152 164 183
133

42.5

45.2

48.5

48.7

47.3

53.8

66.0

70.6

76.8

77.0

77.5

75.7
4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
Source: Company, MOSL Source: Company, MOSL

Exhibit 14: Efforts proportion at onsite has increased


Exhibit 13: Deal wins have consistently bettered revenue steadily

Deal Wins (USDm) Revenue (USDm) Efforts mix (%)


370
Onsite Offshore
320
270
88.3 88.5 87.2 85.7 83.7 82.2 79.5 76.8
220
170
11.7 11.5 12.8 14.3 16.3 17.8 20.5 23.2
120
FY10

FY11

FY12

FY13

FY14

FY15

FY16

9MFY17
4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

Source: Company, MOSL Source: Company, MOSL

Exhibit 15: Putting margins under pressure Exhibit 16: Despite improved utilization
EBITDA margin (%) SGA (%) Incl. Trainees (%) Excl. Trainees (%)
79.0
24.0
22.8
22.6
22.6

22.3
22.2

21.8
21.8

21.7
21.7
21.4
21.3

21.3

20.7
19.4

75.5

72.0

68.5
18.4
20.8
19.5
21.5
20.0
19.8
20.5
19.5
17.1
18.5
17.7
16.7
14.7
12.5
13.4

65.0
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

Source: Company, MOSL Source: Company, MOSL

19 January 2017 7
MindTree

Operating metrics
Exhibit 17: Operating Metrics
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Geographic Mix - %
US 60.4 63.1 64.9 67.5 63.2 63.5 65.9 66.7 67.6 68.7
Europe 26.1 24.2 23.7 21.9 26.6 26.4 24.5 23.1 21.4 20.8
India 4.0 4.1 3.6 3.4 3.2 2.7 2.8 3.1 3.5 3.1
APAC 9.6 8.6 7.8 7.2 7.0 7.4 6.8 7.1 7.5 7.4
Service Line Mix - %
Development 33.4 34.0 33.2 33.4 31.8 32.0 33.0 32.5 31.8 31.8
Maintenance 21.2 21.4 20.8 21.7 21.0 19.8 18.0 17.3 17.8 17.6
Consulting 4.2 4.1 3.9 3.7 2.8 2.6 4.0 4.1 3.8 3.9
Package Implementation 5.4 5.8 7.5 7.2 13.3 12.9 13.6 13.9 13.1 12.4
Independent Testing 15.5 15.4 17.5 17.7 12.8 12.8 12.6 12.8 12.4 12.6
IMS & Tech Support 18.7 17.6 15.4 14.9 17.0 18.1 17.5 18.4 19.9 20.3
IP Licensing 1.6 1.6 1.7 1.4 1.3 1.8 1.3 1.0 1.2 1.4
Vertical Mix - %
Retail, CPG & Manufacturing 21.6 22.2 21.7 22.1 20.6 20.3 23.8 24.1 24.2 24.1
BFSI 22.8 23.5 25.0 26.9 24.7 25.1 24.4 24.9 24.7 24.1
Travel & Hospitality 17.1 16.2 16.0 15.6 13.9 15.6 16.4 15.0 14.4 15.1
Hitech & Media 32.7 32.7 32.6 35.4 30.4 30.2 35.3 36.1 36.7 36.7
Others 5.8 5.4 4.7 0.0 10.5 8.7 0.0 0.0 0.0 0.0
Project Type - %
FPP 43.6 46.5 46.5 48.9 49.7 50.0 47.7 48.7 50.6 52.5
T&M 56.4 53.5 53.5 51.1 50.3 50.0 52.3 51.3 49.4 47.5
Efforts Mix - %
Onsite 17.6 18.2 18.5 18.6 20.0 21.1 22.3 22.9 23.3 23.5
Offshore 82.4 81.8 81.5 81.4 80.0 78.9 77.7 77.1 76.7 76.5
Revenue mix - %
Onsite 45.6 45.8 47.1 48.1 52.4 54.5 57.6 59.5 59.2 60.2
Offshore 54.4 54.2 52.9 51.9 47.6 45.5 42.4 40.5 40.8 39.8
Utilization - %
Including Trainees 73.5 71.8 70.2 70.3 71.4 68.5 69.4 71.4 71.4 71.3
Excluding Trainees 74.2 74.2 71.1 71.9 73.3 69.9 70.6 72 73.1 72.3
Client Metrics
No. Of Active Clients 200 201 217 218 296 294 348 343 337 348
New Clients added 8 5 8 16 18 23 37 17 18 21
Client Buckets
USD1m clients 77 83 88 88 92 93 101 98 107 106
USD5m clients 27 27 28 28 29 29 31 31 30 30
USD10m clients 13 13 14 13 13 13 15 16 16 17
USD20m clients 7 6 6 6 6 5 6 5 6 4
USD30m clients 4 4 4 0 0 0 0 0 0 1
USD50m clients 0 1 1 2 2 2 2 2 2 1
Client Contribution - %
Top client 9.1 9.6 10.1 11.0 10.7 10.9 11.7 13.1 14.4 14.1
Top 5 32.4 32.5 32.3 33.2 31.8 32.1 29.7 29.6 30.0 30.1
Top 10 48.8 48.1 47.3 48.5 45.5 46.2 42.7 42.6 42.5 42.3
Repeat business 99.7 99.4 99.2 98.9 98.9 98.5 96.0 98.2 97.8 98.7
Source: MOSL, Company

19 January 2017 8
MindTree

Financials and Valuations


Key assumption
2012 2013 2014 2015 2016 2017E 2018E 2019E
INR/USD Rate 47.6 54.2 60.4 61.0 65.6 67.3 70.0 70.4
Revenues (USD m) 403 436 502 584 715 777 838 922
Offshore Revenue (%) 66.4 62.4 58.2 54.3 46.6 40.3 40.1 39.6
Total Headcount 11,674 11,430 13,218 14,795 16,958 16,219 17,937 19,372
Per Capita Productivity (USD) 34,489 38,114 37,948 39,458 42,175 47,885 46,692 47,600
Offshore Uilization (%) 69.9 70.4 67.8 71.9 69.9 71.5 72.7 73.2
Volume growth (%) 16.5 6.4 13.3 13.4 16.5 4.6 7.1 9.3
Blended Pricing Change (%) 4.4 1.7 1.6 2.7 5.2 3.8 0.7 0.7

Income Statement (INR Million)


Y/E Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E
Net Sales 19,152 23,618 30,316 35,619 46,896 52,270 58,596 64,915
Change (%) 26.9 23.3 28.4 17.5 31.7 11.5 12.1 10.8
EBITDA 2,930 4,860 6,102 7,092 8,299 7,063 8,511 9,436
EBITDA Margin (%) 15.3 20.6 20.1 19.9 17.7 13.5 14.5 14.5
Depreciation 695 624 809 1,018 1,332 1,869 2,085 2,451
EBIT 2,235 4,236 5,293 6,074 6,967 5,194 6,426 6,985

Interest 5 10 4 1 3 185 114 34


Other Income 385 10 496 835 810 615 1,154 1,472
Extraordinary items 0 0 0 0 0 0 0 0
PBT 2,615 4,236 5,785 6,908 7,774 5,624 7,466 8,423
Tax 430 847 1,275 1,545 1,741 1,396 1,792 2,022
Tax Rate (%) 16.4 20.0 22.0 22.4 22.4 24.8 24.0 24.0
Min. Int. & Assoc. Share 0 0 0 0 0 0 0 0
Reported PAT 2,185 3,389 4,510 5,363 6,033 4,228 5,674 6,402
Adjusted PAT 2,185 3,389 4,510 5,363 6,033 4,228 5,674 6,402
Change (%) 101.4 55.1 33.1 18.9 12.5 -29.9 34.2 12.8

Balance Sheet (INR Million)


Y/E Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E
Share Capital 405 415 417 837 1,678 1,680 1,680 1,680
Reserves 9,167 12,722 15,988 19,287 22,278 23,755 26,992 30,348
Net Worth 9,572 13,137 16,405 20,124 23,956 25,435 28,672 32,028
Debt 37 32 27 23 18 14 14 14
Deferred Tax -321 -360 -402 -449 -602 -514 -514 -514
Total Capital Employed 9,288 12,809 16,030 19,702 23,372 24,935 28,172 31,528
Gross Fixed Assets 5,820 6,457 6,886 8,879 10,323 11,352 14,062 16,772
Less: Acc Depreciation 3,272 3,896 3,621 4,366 5,698 7,290 9,375 11,826
Net Fixed Assets 2,548 2,561 3,265 4,513 4,625 4,062 4,687 4,946
Capital WIP 85 571 496 354 232 214 214 214
Investments 7 230 175 8 58 58 58 58
Current Assets 10,342 13,160 16,485 20,183 20,279 22,475 26,010 29,716
Inventory 0 0 0 0 0 0 0 0
Debtors 4,078 4,508 6,004 6,963 9,728 10,399 12,098 13,322
Cash & Bank 602 1,252 1,184 3,763 2,332 814 2,490 4,856
Loans & Adv, Others 5,662 7,400 9,297 9,457 8,219 11,262 11,423 11,539
Curr Liabs & Provns 3,737 3,741 4,561 6,398 9,013 9,058 10,438 11,504
Curr. Liabilities 3,737 3,741 4,561 6,398 9,013 9,058 10,438 11,504
Provisions 0 0 0 0 0 0 0 0
Net Current Assets 6,605 9,419 11,924 13,785 11,266 13,417 15,572 18,211
Total Assets 9,288 12,809 16,030 19,702 23,787 24,935 28,172 31,528

19 January 2017 9
MindTree

Financials and Valuations


Ratios
Y/E Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E
Basic (INR)
EPS 13.4 20.4 26.9 31.9 35.9 25.1 33.7 38.1
Cash EPS 17.6 24.0 31.7 38.0 43.8 34.6 46.1 52.6
Book Value 58.3 78.6 97.9 119.8 142.4 151.2 170.5 190.4
DPS 4.0 3.0 6.3 8.5 10.5 12.0 12.0 15.0
Payout (incl. Div. Tax.) 29.8 14.7 23.2 26.6 29.3 47.7 35.6 39.4

Valuation(x)
P/E 36.0 0.0 18.0 15.2 13.5 19.2 14.3 12.7
Cash P/E 27.6 0.0 15.3 12.7 11.1 14.0 10.5 9.2
Price / Book Value 8.3 0.0 4.9 4.0 3.4 3.2 2.8 2.5
EV/Sales 3.9 0.0 2.4 2.0 1.6 1.4 1.3 1.1
EV/EBITDA 25.5 0.0 12.2 10.1 9.3 10.7 8.7 7.6
Dividend Yield (%) 0.8 0.0 1.3 1.8 2.2 2.5 2.5 3.1

Profitability Ratios (%)


RoE 25.2 29.8 30.5 29.4 27.4 17.1 21.0 21.1
RoCE 25.1 37.0 35.5 32.8 30.6 19.6 22.8 22.4
Turnover Ratios (%)
Fixed Asset Turnover (x) 7.5 9.2 9.3 7.9 10.1 12.9 12.5 13.1
Debtors (No. of Days) 77.7 69.7 72.3 71.4 75.7 72.6 75.4 74.9
Leverage Ratios (%)
Net Debt/Equity (x) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow Statement (INR Million)


Y/E Mar 2012 2013 2014 2015 2016 2017E 2018E 2019E
Adjusted EBITDA 2,930 4,860 6,102 7,092 8,299 7,063 8,511 9,436
Non cash opr. exp (inc) 175 -624 180 -1 -3 -462 -114 -34
(Inc)/Dec in Wkg. Cap. -523 -603 -1,766 489 -1,207 -37 -479 -274
Tax Paid -554 -969 -1,297 -1,545 -1,741 -1,396 -1,792 -2,022
Other operating activities 0 0 0 0 0 0 0 0
CF from Op. Activity 2,028 2,664 3,219 6,035 5,348 5,169 6,126 7,107
(Inc)/Dec in FA & CWIP -410 -1,057 -1,517 -1,851 -1,322 -1,011 -2,710 -2,710
Free cash flows 1,618 1,607 1,702 4,184 4,026 4,158 3,416 4,397
(Pur)/Sale of Invt -2,038 -1,041 -948 167 -50 0 0 0
Others 121 179 222 656 417 554 1,228 1,629
CF from Inv. Activity -2,327 -1,919 -2,243 -1,028 -955 -457 -1,482 -1,081
Inc/(Dec) in Net Worth 120 322 63 420 841 2 0 0
Inc / (Dec) in Debt 402 -222 -247 -4 -5 -4 0 0
Interest Paid -4 -11 -5 0 0 0 0 0
Divd Paid (incl Tax) & Others -76 -184 -854 -1,909 -2,129 -2,436 -2,437 -3,046
CF from Fin. Activity 442 -95 -1,043 -1,493 -1,293 -2,438 -2,437 -3,046
Inc/(Dec) in Cash 143 650 -67 3,514 3,100 2,274 2,207 2,981
Add: Opening Balance 459 602 1,251 249 -768 -1,460 283 1,875
Closing Balance 602 1,252 1,184 3,763 2,332 814 2,490 4,856

19 January 2017 10
MindTree

Corporate profile
Exhibit 1: Sensex rebased
Company description
MindTree (MTCL) is a global information technology
solutions company, with revenue of over USD550m
(LTM) and over 13,000 employees. It is a strategic
partner to many Fortune 500 enterprises, providing
services in areas like Application Development,
Application Maintenance, Consulting, Testing and
Infrastructure Services, across industries like BFSI,
Travel and Retail. It enables customers to achieve
competitive advantage through flexible and next
generation global delivery models, agile Source: MOSL/Bloomberg
methodologies and expert frameworks.

Exhibit 2: Shareholding pattern (%) Exhibit 3: Top holders


Dec-16 Sep-16 Dec-15 Holder Name % Holding
Promoter 13.7 13.7 13.8 Coffee Day Enterprises Limited 10.4
DII 7.2 6.6 6.8 Nalanda India Fund Limited 9.4
FII 39.0 39.4 44.3 Coffee Day Trading Limited 6.3
Others 40.1 40.3 35.1 Amansa Holdings Private Limited 4.3
Note: FII Includes depository receipts Source: Capitaline Matthews India Fund 3.3
Source: Capitaline

Exhibit 4: Top management Exhibit 5: Directors


Name Designation Name Name
Albert Hieronimus Vice Chairman & Director APURVA PUROHIT Manisha Girotra
Subroto Bagchi Executive Chairman Pankaj Chandra Ramesh Ramanathan
Krishnakumar Natarajan CEO & Managing Director Siddhartha V G Akshaya Bhargava
Rostow Ravanan Executive Director & CFO Milind Sarwate
N S Parthasarathy Executive Vice Chairman
Vedavalli S Company Secretary

Source: Capitaline *Independent

Exhibit 6: Auditors Exhibit 7: MOSL forecast v/s consensus


Name Type EPS MOSL Consensus
Variation (%)
(INR) forecast forecast
Deloitte Haskins & Sells Statutory
FY17 25.1 31.6 -20.4
FY18 33.7 38.4 -12.2

Source: Bloomberg

Source: Capitaline

19 January 2017 11
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19 January 2017 12