Looking for growth stocks? Pay attention to Mindtree

23-04-2014 • About Mindtree ($MINDTREE) • By InTwits

Have you thought about Mindtree as a growth stock? It showed noticeble revenue performance in the last years among with attractive profitability and financial model.

Growth story

Mindtree showed fast growth in the last financial year. The company's revenue surged on 28.8% in FY2014. The growth also happened in EBITDA of 33.9% for the same period.

In the longer period the company showed fast revenue growth of 26.2% from FY2011 to FY2014 annually. EBITDA surged on 51.6% from FY2011 to FY2014 annually.

Mindtree ($MINDTREE) financials for the last 5 years

mln. INR	FY2010	FY2011	FY2012	FY2013	FY2014
Revenue	43,076	15,090	19,099	23,532	30,316
Revenue growth, %		-65.0%	26.6%	23.2%	28.8%
Gross margin, %		32.8%	31.5%	36.2%
SG&A, %			20.0%	19.0%
EBITDA	2,500	1,787	2,888	4,652	6,230
EBITDA growth, %		-28.5%	61.6%	61.1%	33.9%
EBITDA margin, %	5.80%	11.8%	15.1%	19.8%	20.6%
Net Income	2,149	1,016	2,180	3,217	4,508
Net Income margin, %	4.99%	6.73%	11.4%	13.7%	14.9%

CAPEX	457	840	475	1,066	1,520
CAPEX/Revenue, %	1.06%	5.57%	2.49%	4.53%	5.01%
Debt	70	46	563	387	32
Cash	202	211	602	1,252	1,184
Net Debt/EBITDA	-0.1x	-0.1x	-0.0x	-0.2x	-0.2x

ROIC, %	26.4%	14.9%	24.9%	34.6%	36.2%
ROE, %	35.2%	14.0%	24.9%	27.5%	30.0%

Profitability and return on investment

Margin expansion supported EBITDA growth. EBITDA margin increased slightly on 0.800 pp from 19.8% to 20.6% in FY2014. In the last 3 years the company's EBITDA margin surged on 8.80 pp from 11.8% in FY2011 to 20.6% in FY2014.

Mindtree shows attractive ROIC at 36.2% for the last 12 months which assumes stable development model. Three years ago it was considerably lower at 14.9%. It's average ROIC for the last three years was 31.9%.

The company's Net Income margin increased on 1.20 pp from 13.7% to 14.9% in FY2014. In the last 3 years Net Income margin surged on 8.20 pp from 6.70% in FY2011 to 14.9% in FY2014.

Mindtree operates at ROE of 30.0%. Average ROE for the last three years was 27.5%.

Capital expenditures (CAPEX)

To this fast growth the company had to invest in CAPEX.In FY2014 Mindtree had CAPEX/Revenue of 5.01%. The company's CAPEX/Revenue decreased on 0.553 pp from 5.57% in FY2011 to 5.01% in FY2014. Average CAPEX/Revenue for the last three years was 4.01%.

Leverage (Debt)

Having such a fast growth profile Mindtree keeps negative net debt at -0.2x Net Debt/EBITDA. In the last 3 years the company showed fast leverage growth of 0.09x from -0.09x in FY2011 to -0.18x in FY2014.

Valuation vs. comparable companies

At the end of trading day today Mindtree traded at 9.3x EV/EBITDA which is 41.7% lower than 16.0x IT Consulting & Software peer group avearge calculated on the basis of 102 companies. The company trades at 13.1x P/E which is not surprisingly 47.5% higher than 8.9x IT Consulting & Software industry avearge calculated based on 5 companies.

For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. The market closed today at 12.3x EV/(EBITDA-CAPEX) for Mindtree which is higher vs. -0.4x IT Consulting & Software peer group avearge calculated on the basis of 3 companies.

Peers in IT Consulting & Software

Below we provide Mindtree benchmarking against other companies in IT Consulting & Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)		24.3%	31.0%	28.8%	29.9%
Infosys ($INFY)		20.9%	22.7%	19.6%	24.2%
Cmc ($CMC)		-65.2%	35.5%	31.1%	15.8%

Median (3 companies)		20.9%	31.0%	28.8%	24.2%
Mindtree ($MINDTREE)		-65.0%	26.6%	23.2%	28.8%

Top companies by Gross margin, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)					47.4%
Infosys ($INFY)	42.7%	45.3%	41.3%	98.1%	35.9%

Median (2 companies)	42.7%	45.3%	41.3%	98.1%	41.6%

Top companies by EBITDA margin, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)	29.0%	29.9%	29.5%	28.6%	30.7%
Infosys ($INFY)	34.4%	32.5%	31.6%	27.9%	26.3%
Cmc ($CMC)	5.6%	19.4%	15.3%	16.5%	18.0%

Median (3 companies)	29.0%	29.9%	29.5%	27.9%	26.3%
Mindtree ($MINDTREE)	5.8%	11.8%	15.1%	19.8%	20.6%

Top companies by CAPEX/Revenue, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Infosys ($INFY)	3.7%	4.7%	4.9%	5.2%	5.5%
Cmc ($CMC)	0.9%	9.2%	8.1%	4.4%	4.0%
Tata Consultancy Services ($TCS)	3.5%	4.9%	4.1%	4.2%	3.8%

Median (3 companies)	3.5%	4.9%	4.9%	4.4%	4.0%
Mindtree ($MINDTREE)	1.1%	5.6%	2.5%	4.5%	5.0%

Top companies by ROIC, %

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Tata Consultancy Services ($TCS)	44.7%	47.1%	48.6%	48.4%	50.2%
Cmc ($CMC)	32.0%	31.5%	26.2%	33.2%	35.3%
Infosys ($INFY)	32.2%	32.1%	32.4%	28.3%	27.2%

Median (3 companies)	32.2%	32.1%	32.4%	33.2%	35.3%
Mindtree ($MINDTREE)	26.4%	14.9%	24.9%	34.6%	36.2%

Top companies by Net Debt / EBITDA

Top
	FY2010	FY2011	FY2012	FY2013	FY2014
Cmc ($CMC)	-0.1x	-0.2x	-0.2x	-0.4x	-0.3x
Tata Consultancy Services ($TCS)	-0.5x	-0.4x	-0.4x	-0.4x	-0.6x
Infosys ($INFY)	-1.5x	-1.9x	-1.9x	-1.9x	-2.0x

Median (3 companies)	-0.5x	-0.4x	-0.4x	-0.4x	-0.6x
Mindtree ($MINDTREE)	-0.1x	-0.1x	-0.0x	-0.2x	-0.2x

Mindtree stock price chart

Mindtree financials

mln.	FY2010	FY2011	FY2012

Revenue	43,076	15,090	19,099
EBITDA	2,500	1,787	2,888
Net income	2,149	1,016	2,180
CAPEX	457.3	840.0	475.0
Debt	70.419	46.000	563.0
Cash	201.9	211.0	602.0

About Mindtree

Mindtree Limited, an information technology consulting and implementation company, provides various business solutions primarily in India, the United States, Europe, and internationally. It operates in five segments: Manufacturing, BFSI, Hitech, Travel and Transport, and Others. The company offers agile, analytics and information management, packaged, enterprise application integration and business process management, and customized technology solutions; and application development and maintenance, cloud and consulting, engineering research and development, independent testing, infrastructure management, mainframe and midrange technology, mobility, and SAP services. It also provides digital business services, including digital commerce, digital marketing, mobility solutions, portals and collaboration, and user experience design services; Bluetooth, corporate lending, digital video surveillance, FATCA compliance mandate, end-to-end trade promotion management and collaborative sales, MWatch, and MindTest solutions; and mKonnect, a holistic solution to implement an omni-channel engagement platform. In addition, the company offers integrated customer insights solutions; omni channel service orchestration and VMUnify solutions; Store Portal, a retail store solution; SITEsMART, a streamline Website delivery solution; and secondary sales platform, a solution to secondary sales and distribution channels. It serves banking, capital markets, consumer and communications, consumer packaged goods, independent software vendors, industrial manufacturing, insurance, manufacturing, media and entertainment, retail, and travel and transportation industries. Mindtree Limited has a strategic alliance with Pegasystems Inc. to develop and optimize custom business process management solutions. The company was formerly known as Mindtree Consulting Limited and changed its name to Mindtree Limited in March 2008. Mindtree Limited was founded in 1999 and is headquartered in Bengaluru, India.