Emkay Global Financial Services is bullish on Mindtree and has recommended accumulate rating on the stock with a target price of Rs 415 in its October 11, 2011 research report.
“Mindtree, Appreciate company’s strategy of (1) focusing on fewer verticals, (2) and client mining initiatives, which have already started yielding results in the form of recent deal wins. Estimate a 16%, 24% and 27% revenue, EBITDA and profit CAGR (16% US$ revenue CAGR) over FY11-14E, as we expect margins to improve by 250 bps over the period. Unsucessful handset forays, discontinuation of guidance +hedging losses have driven de-rating. Valuations attractive at 9.3x/8.3x FY12/13E EPS, given better performance ahead.”
“Post its unsuccessful foray into the handset manufacturing business, Mindtree has renewed focus on the core services business in the form of (1) higher vertical focused approach, and (2) higher incentives on client mining /farming, early success of which, is evident from the recently announced large deals in the IT services business. In our view, ramp ups on recently announced large deals in the IT services segment, along with completion of ramp downs in some PES accounts will aid strong revenue uptick over the next few quarters. We see upside risks to our 19%/13% US$ revenue growth estimates for FY12/13. We estimate Mindtree’s EBITDA margins to improve by ~250 bps over FY11-14E ( note that margins have fallen sharply by ~1500 bps over FY09-11) driven by (1) revenue growth leverage ( we see upsides to our 15.5% US$ revenue CAGR over FY11-13E as we build in <3.5% US$ revenue CQGR ), (2) absence of one off costs/losses related to handset business, (3) improvement in employee bulge ( only ~20% of employees <3 yrs of experience) and (4) utilization of high cost resources (related to Kyocera). We expect sustenance of the current INR depreciation to further aid margin performance, given higher sensitivity at ~55-60 bps for every 1% change in US$/INR. We highlight that management remains confident of improving margins to 14-15% by Q4FY12 (at Rs 45/$).”
“Mindtree has had its share of flip-flops in the form of - (1) its ill fated handset manufacturing foray, (2) discontinuing the practice of guidance from FY11 onwards and (3) an aggressive hedging policy in the past (hedging losses of ~Rs 2 bn in FY09 ) - driving sharp derating. We expect recent initiatives to drive course correction and an improvement in financial performance ahead. Valuations reasonably attractive at ~9x/8xFY12/13E earnings of Rs 37.6/42 given ~27% profit CAGR over FY11-14E (note that we base our currency assumptions at Rs 46/$ for FY11-14). Initiate coverage with an “Accumulate” rating and a March’13 target price of Rs 415,” says Emkay Global Financial Services research report.
....more info
“Mindtree, Appreciate company’s strategy of (1) focusing on fewer verticals, (2) and client mining initiatives, which have already started yielding results in the form of recent deal wins. Estimate a 16%, 24% and 27% revenue, EBITDA and profit CAGR (16% US$ revenue CAGR) over FY11-14E, as we expect margins to improve by 250 bps over the period. Unsucessful handset forays, discontinuation of guidance +hedging losses have driven de-rating. Valuations attractive at 9.3x/8.3x FY12/13E EPS, given better performance ahead.”
“Post its unsuccessful foray into the handset manufacturing business, Mindtree has renewed focus on the core services business in the form of (1) higher vertical focused approach, and (2) higher incentives on client mining /farming, early success of which, is evident from the recently announced large deals in the IT services business. In our view, ramp ups on recently announced large deals in the IT services segment, along with completion of ramp downs in some PES accounts will aid strong revenue uptick over the next few quarters. We see upside risks to our 19%/13% US$ revenue growth estimates for FY12/13. We estimate Mindtree’s EBITDA margins to improve by ~250 bps over FY11-14E ( note that margins have fallen sharply by ~1500 bps over FY09-11) driven by (1) revenue growth leverage ( we see upsides to our 15.5% US$ revenue CAGR over FY11-13E as we build in <3.5% US$ revenue CQGR ), (2) absence of one off costs/losses related to handset business, (3) improvement in employee bulge ( only ~20% of employees <3 yrs of experience) and (4) utilization of high cost resources (related to Kyocera). We expect sustenance of the current INR depreciation to further aid margin performance, given higher sensitivity at ~55-60 bps for every 1% change in US$/INR. We highlight that management remains confident of improving margins to 14-15% by Q4FY12 (at Rs 45/$).”
“Mindtree has had its share of flip-flops in the form of - (1) its ill fated handset manufacturing foray, (2) discontinuing the practice of guidance from FY11 onwards and (3) an aggressive hedging policy in the past (hedging losses of ~Rs 2 bn in FY09 ) - driving sharp derating. We expect recent initiatives to drive course correction and an improvement in financial performance ahead. Valuations reasonably attractive at ~9x/8xFY12/13E earnings of Rs 37.6/42 given ~27% profit CAGR over FY11-14E (note that we base our currency assumptions at Rs 46/$ for FY11-14). Initiate coverage with an “Accumulate” rating and a March’13 target price of Rs 415,” says Emkay Global Financial Services research report.
....more info