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Mindtree demonstrated fast growth over the last few years. Will the growth continue?

23-04-2015 • About Mindtree ($MINDTREE) • By InTwits

Mindtree is a growth stock in IT Consulting & Software industry. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.

Growth story


Mindtree showed fast growth in the last financial year. Mindtree's revenue surged on 17.0% in FY2015. At the same time Mindtree well managed its profitability and also showed EBITDA growth of 15.6% for the same period.

In the last 3 years the company showed fast revenue growth of 22.9% from FY2012 to FY2015 annually. EBITDA surged on 35.6% from FY2012 to FY2015 annually.

Mindtree ($MINDTREE) financials for the last 5 years

mln. INR FY2011 FY2012 FY2013 FY2014 FY2015
Revenue15,09019,09923,53230,31635,461
Revenue growth, %26.6%23.2%28.8%17.0%
Gross margin, %32.8%31.5%36.2%34.8%
SG&A, %20.0%19.0%17.9%
EBITDA1,7872,8884,6526,2307,200
EBITDA growth, %61.6%61.1%33.9%15.6%
EBITDA margin, %11.8%15.1%19.8%20.6%20.3%
Net Income1,0162,1803,2174,5085,322
Net Income margin, % 6.73%11.4%13.7%14.9%15.0%
 
CAPEX8404751,0661,5201,995
CAPEX/Revenue, %5.57%2.49%4.53%5.01%5.63%
Debt4656338732173
Cash2116021,2521,1843,763
Net Debt/EBITDA-0.1x-0.0x-0.2x-0.2x-0.5x
 
ROIC, %14.9%24.9%34.6%36.2%32.0%
ROE, %14.0%24.9%27.5%30.0%28.2%

Profitability and return on investment


Despite revenue growth EBITDA margin declined slightly from 20.6% in FY2014 to 20.3% in FY2015. In the last 3 years EBITDA margin surged on 5.20 pp from 15.1% in FY2012 to 20.3% in FY2015.

We call Mindtree an attractive growth stock as together with the growth it delivers high ROIC at 32.0%. During the last three years it surged - it was 24.9% in FY2012. It's average level of ROIC for the last three years was 34.3%.

Net Income margin increased slightly on 0.100 pp from 14.9% to 15% in FY2015. If we look for the longer period Net Income margin surged on 3.60 pp from 11.4% in FY2012 to 15% in FY2015.

Mindtree operates at ROE of 28.2%. Average ROE for the last three years was 28.6%.

Capital expenditures (CAPEX)


To this fast growth Mindtree had to invest in CAPEX.In FY2015 the company had CAPEX/Revenue of 5.63%. CAPEX/Revenue surged on 3.14 pp from 2.49% in FY2012 to 5.63% in FY2015. It's average level of CAPEX/Revenue for the last three years was 5.06%.

Leverage (Debt)


Having such a fast growth profile Mindtree keeps negative net debt at -0.5x Net Debt/EBITDA. In the last 3 years leverage surged on 0.49x from -0.01x in FY2012 to -0.50x in FY2015.

Valuation vs. comparable companies


At the end of trading day today Mindtree traded at 13.8x EV/EBITDA which is the same as 13.9x IT Consulting & Software peer group avearge calculated on the basis of 102 companies. At the end of trading day today Mindtree traded at 19.3x P/E which is 21.8% higher than 15.9x IT Consulting & Software peer group avearge calculated on the basis of 6 companies.

For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. At the end of trading day today Mindtree traded at 19.1x EV/(EBITDA-CAPEX) which is 3,300% higher than 0.6x IT Consulting & Software peer group avearge calculated on the basis of 5 companies.

Peers in IT Consulting & Software


Below you can find Mindtree benchmarking vs. other companies in IT Consulting & Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
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, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top
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, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
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, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
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, %

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
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

 FY2011 FY2012 FY2013 FY2014 FY2015
Top 5
3I Infotech ($3IINFOTECH)3.5x8.5x20.3x27.7x
Ramco Systems ($RAMCOSYS)4.0x8.8x27.6x
Starcom Information Technology ($STARCOM)17.4x
Onward Technologies ($ONWARDTEC)2.7x2.4x2.2x4.1x
Kpit Technologies ($KPIT)-0.7x0.3x0.5x0.7x
 
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


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