Mindtree reports 31.3% CAPEX growth and 17.0% Revenue growth

16-04-2015 • About Mindtree ($MINDTREE) • By InTwits

Mindtree reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

Mindtree has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.6%. At the same time it's a lot of higher than industry average of 3.7%.
CAPEX is quite volatile: 1,995 in FY2015, 1,520 in FY2014, 1,066 in FY2013, 475 in FY2012, 840 in FY2011
The company has highly profitable business model: ROIC is at 32.0%

Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Mindtree ($MINDTREE) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	15,090	19,099	23,532	30,316	35,461	17.0%
Gross Profit	4,945	6,022	8,512		12,336
SG&A		3,823	4,476		6,346
EBITDA	1,787	2,888	4,652	6,230	7,200	15.6%
Net Income	1,016	2,180	3,217	4,508	5,322	18.1%
Balance Sheet
Cash	211	602	1,252	1,184	3,763	217.8%
Short Term Debt	0	537	363	5	155	3,000.0%
Long Term Debt	46	26	24	27	18	-33.3%
Cash flow
Capex	840	475	1,066	1,520	1,995	31.3%
Ratios
Revenue growth	-65.0%	26.6%	23.2%	28.8%	17.0%
EBITDA growth	-28.5%	61.6%	61.1%	33.9%	15.6%
Gross Margin	32.8%	31.5%	36.2%		34.8%	34.8%
EBITDA Margin	11.8%	15.1%	19.8%	20.6%	20.3%	-0.2%
Net Income Margin	6.7%	11.4%	13.7%	14.9%	15.0%	0.1%
SG&A, % of revenue		20.0%	19.0%		17.9%	17.9%
CAPEX, % of revenue	5.6%	2.5%	4.5%	5.0%	5.6%	0.6%
ROIC	14.9%	24.9%	34.6%	36.2%	32.0%	-4.2%
ROE	14.0%	24.9%	27.5%	30.0%	28.2%	-1.8%
Net Debt/EBITDA	-0.1x	-0.0x	-0.2x	-0.2x	-0.5x	-0.3x

Revenue and profitability

The company's Revenue surged on 17.0% in FY2015. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased on 9.3 pp from 14.2% to 23.5% in FY2015.

Net Income marign showed almost no change in FY2015.

Capital expenditures (CAPEX) and working capital investments

Mindtree's CAPEX/Revenue was 5.6% in FY2015. Mindtree showed CAPEX/Revenue growth of 3.1 pp from 2.5% in FY2012 to 5.6% in FY2015. Average CAPEX/Revenue for the last three years was 5.1%.

Return on investment

The company operates at high and attractive ROIC (32.00%) and ROE (28.24%). ROIC decreased on 4.2 pp from 36.2% to 32.0% in FY2015. ROE decreased slightly on 1.8 pp from 30.0% to 28.2% in FY2015.

Leverage (Debt)

Company's Net Debt / EBITDA is -0.5x and Debt / EBITDA is 0.0x. Net Debt / EBITDA dropped on 0.3x from -0.2x to -0.5x in FY2015. Debt surged on 441% in FY2015 while cash jumped on 218% in FY2015.

Valuation

The company's trades at EV/EBITDA 15.6x and P/E 21.8x while industy averages are 10.5x and 26.1x. The company's EV/(EBITDA-CAPEX) is 21.6x with the industry average at 4.7x.

Appendix 1: 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 5	FY2011	FY2012	FY2013	FY2014	FY2015
Tech Mahindra ($TECHM)	-85.8%	6.8%	25.2%	174.0%
Tata Consultancy Services ($TCS)		31.0%	28.8%	29.9%	15.7%
Infinite Computer Solutions (India) ($INFINITE)	-57.9%	19.5%	31.7%	24.6%
Infosys ($INFY)	20.9%	22.7%	19.6%	24.2%
Sqs India Bfsi ($SQSBFSI)	-66.5%	46.4%	32.9%	20.4%
Median (21 companies)	-44.3%	22.7%	20.4%	14.0%	14.2%
Mindtree ($MINDTREE)		26.6%	23.2%	28.8%	17.0%

Top companies by Gross margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)				47.4%	42.4%
Infosys ($INFY)	45.3%	41.3%	98.1%	35.9%
Wipro ($WIPRO)	31.5%	29.2%	30.4%	32.0%
Median (3 companies)	36.7%	33.8%	64.2%	35.9%	42.4%

Top companies by EBITDA margin, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Oracle Financial Services Software ($OFSS)	37.4%	35.3%	35.2%	37.4%
Tata Consultancy Services ($TCS)	29.9%	29.5%	28.6%	30.7%	26.1%
Infosys ($INFY)	32.5%	31.6%	27.9%	26.3%
Wipro ($WIPRO)	21.1%	19.1%	20.9%	22.4%
Tech Mahindra ($TECHM)	19.5%	16.7%	20.7%	22.2%
Median (18 companies)	18.0%	15.1%	16.5%	18.3%	21.0%
Mindtree ($MINDTREE)	11.8%	15.1%	19.8%	20.6%	20.3%

Top companies by CAPEX/Revenue, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Ramco Systems ($RAMCOSYS)	16.4%		22.1%	15.3%
Niit Technologies ($NIITTECH)	4.1%	5.9%	4.6%	6.1%
Infosys ($INFY)	4.7%	4.9%	5.2%	5.5%
Tech Mahindra ($TECHM)	3.0%	5.4%	2.6%	5.0%
Geometric ($GEOMETRIC)	3.8%	3.5%	4.2%	4.0%
Median (17 companies)	4.0%	3.9%	3.2%	2.6%	3.1%
Mindtree ($MINDTREE)	5.6%	2.5%	4.5%	5.0%	5.6%

Top companies by ROIC, %


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
Tata Consultancy Services ($TCS)	47.1%	48.6%	48.4%	50.2%	40.5%
Tech Mahindra ($TECHM)	19.2%	15.4%	20.1%	43.0%
Geometric ($GEOMETRIC)	19.6%	29.9%	46.4%	41.1%
Cmc ($CMC)	31.5%	26.2%	33.2%	35.3%	26.0%
Hexaware Technologies ($HEXAWARE)	23.8%	33.5%	39.2%	34.7%
Median (30 companies)	19.2%	19.1%	20.4%	22.9%	33.3%
Mindtree ($MINDTREE)	14.9%	24.9%	34.6%	36.2%	32.0%

Top companies by Net Debt / EBITDA


Top 5	FY2011	FY2012	FY2013	FY2014	FY2015
3I Infotech ($3IINFOTECH)	3.5x	8.5x	20.3x	27.7x
Ramco Systems ($RAMCOSYS)	4.0x	8.8x		27.6x
Starcom Information Technology ($STARCOM)				17.4x
Onward Technologies ($ONWARDTEC)	2.7x	2.4x	2.2x	4.1x
Kpit Technologies ($KPIT)	-0.7x	0.3x	0.5x	0.7x
Median (23 companies)	-0.2x	-0.1x	-0.2x	-0.3x	-0.5x
Mindtree ($MINDTREE)	-0.1x	-0.0x	-0.2x	-0.2x	-0.5x

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.