Prabhudas Lilladher Q4FY15 report for MindTree
Prabhudas Lilladher Private Ltd has issued the following Q4FY15 report for MindTree:
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Q4FY15 Result Update – Soft quarter, Strong outlook driven by deal closure
MindTree (MTCL) Q4FY15 performance was largely in-line with expectation. Revenue was in-line, however margins were touch softer. We expect MTCL to deliver USD revenue growth in mid-teens for FY16 ahead of NASSCOM guidance. Management was keen to invest in business with limited scope of margin expansion in near term.
Mixed-bag – Revenue in-line, Margins soft: MTCL Q4FY15 revenue grew by 0.7% QoQ to Rs9,181m (PLe: Rs9,198m, Cons: Rs9,172m) in INR terms and grew by 0.1% QoQ in USD terms to $147.8m (PLe: US$148.2m, Cons.: US$147.7m). EBITDA margins contracted by 101bps QoQ to 19.5% (PLe: 20.1% Cons: 20.0%) due to cross-currency headwinds, Discoverture integration, and lower utilization. EPS declined by 8.4% QoQ to Rs15.4 (PLe: Rs16.4, Cons: Rs15.8), mainly due to Forex loss (Q4: Rs(130)m; Q3:Rs70m).
Entering seasonally strong quarter with margin lever: Mindtree enters a seasonally strong half, as H1 tends to be stronger compared to H2. Moreover, strong onsite volume growth continues to give comfort for subsequent offshore volume growth. MTCL witnessed strongest net employee addition since Q2FY12 resulting in dip in utilization, a buffer for margin headwinds. (Exhibit: 2,3)
FY16 outlook positive – What would drive industry leading growth?: Management expects to beat NASSCOM guidance of 12-14% growth in FY16. 1) Guided for pick up in revenue momentum in Q1FY16 setting tone for FY16 expectation. 2) Expects to close multi-year, multi-million dollar deal over next 3-4 weeks 3) Weakness with 2 clients in top 10 – One client is expected to return back to normal spending pattern in Q1FY16, whereas another would witness reversion in H2FY16. (Exhibit: 4)
Restructuring to gear up Mindtree for 2020: Management has restructured organization to gear up for next wave of growth driven by Digital adoption.
Valuation & Recommendation – BUY, with revised TP Rs1,500: We expect FY16 revenue momentum to accelerate with flattish EBIT margin due to investment. Industry leading growth would continue to justify valuation premium. Retain “BUY” with revised TP of Rs1,500 (Rs1,530) as tweak our model.