Mindtree revenue jumped on 31.8% while EBITDA Margin decreased on 2.6 pp from 20.3% to 17.7%

18-04-2016 • About Mindtree ($MINDTREE) • By InTwits

Mindtree reported FY2016 financial results today. Here are the key drivers of the company's long term financial model:

Mindtree is a fast growth stock: FY2016 revenue growth was 31.8%, 5 year revenue CAGR was 25.4% at FY2016 ROIC 28.9%
Mindtree has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.2%. At the same time it's a lot of higher than industry average of 3.4%.
CAPEX is quite volatile: ₹1,584m in FY2016, ₹1,995m in FY2015, ₹1,520m in FY2014, ₹1,066m in FY2013, ₹475m in FY2012
The company has highly profitable business model: ROIC is 28.9%

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

Revenue and profitability

The company's Revenue surged on 31.8%. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased on 2.6 pp from 20.3% to 17.7% in FY2016. During the last 5 years EBITDA Margin topped in FY2014 at 20.6% and was declining since that time.

Gross Margin decreased on 2.4 pp from 34.8% to 32.4% in FY2016. SG&A as a % of Revenue showed almost no change in FY2016.

Net Income margin decreased on 3.2 pp from 15.0% to 11.8% in FY2016. During FY2012-FY2016 Net Income margin topped in FY2015 at 15.0%.

Investments (CAPEX, working capital and M&A)

Mindtree's CAPEX/Revenue was 3.4% in FY2016. Mindtree's CAPEX/Revenue decreased slightly on 1.1 pp from 4.5% in FY2013 to 3.4% in FY2016. It's average CAPEX/Revenue for the last three years was 4.7%. During the last 5 years CAPEX as a % of Revenue topped in FY2015 at 5.6%.

Return on investment

The company operates at high and attractive ROIC (28.9%) and ROE (24.3%). ROIC decreased on 3.1 pp from 32.0% to 28.9% in FY2016. ROE decreased on 3.9 pp from 28.2% to 24.3% in FY2016. During FY2012-FY2016 ROIC topped in FY2014 at 36.2% and was declining since that time. During the last 5 years ROE topped in FY2014 at 30.0% and was declining since that time.

Leverage (Debt)

Debt level is -0.2x Net Debt / EBITDA and 0.1x Debt / EBITDA. Debt surged on 379% while cash dropped on 38.0%.

Mindtree has no short term refinancing risk: cash is higher than short term debt (286.1%).

Valuation and dividends

The company's trades at EV/EBITDA 14.6x and P/E 22.1x while industy averages are 17.8x and 21.9x. Mindtree's EV/(EBITDA-CAPEX) is 18.0x with the industry average at 22.8x.

Management team

The company's CEO Rostow Ravanan has spent 4 years with the company. Jagannathan Narasimhan Chakravarthi is a Mindtree's CFO. Jagannathan Narasimhan Chakravarthi has spent 5 years at the company.

Financial and operational results

Mindtree ($MINDTREE) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	19,099	23,532	30,316	35,461	46,730	31.8%
Gross Profit	6,022	8,512		12,336	15,139	22.7%
SG&A	3,823	4,476		6,346	8,577	35.2%
EBITDA	2,888	4,652	6,230	7,200	8,264	14.8%
Net Income	2,180	3,217	4,508	5,322	5,523	3.8%
Balance Sheet
Cash	602	1,252	1,184	3,763	2,332	-38.0%
Short Term Debt	537	363	5	155	815	425.8%
Long Term Debt	26	24	27	18	14	-22.2%
Cash flow
Capex	475	1,066	1,520	1,995	1,584	-20.6%
Ratios
Revenue growth	26.6%	23.2%	28.8%	17.0%	31.8%
EBITDA growth	61.6%	61.1%	33.9%	15.6%	14.8%

Gross Margin	31.5%	36.2%		34.8%	32.4%	-2.4%
EBITDA Margin	15.1%	19.8%	20.6%	20.3%	17.7%	-2.6%
SG&A, % of revenue	20.0%	19.0%		17.9%	18.4%	0.5%
Net Income Margin	11.4%	13.7%	14.9%	15.0%	11.8%	-3.2%
CAPEX, % of revenue	2.5%	4.5%	5.0%	5.6%	3.4%	-2.2%

ROIC	24.9%	34.6%	36.2%	32.0%	28.9%	-3.1%
ROE	24.9%	27.5%	30.0%	28.2%	24.3%	-3.9%
Net Debt/EBITDA	-0.0x	-0.2x	-0.2x	-0.5x	-0.2x	0.3x

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, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ramco Systems ($RAMCOSYS)	9.3%	7.3%	9.9%	37.0%	-
Cyient ($CYIENT)	30.7%	20.6%	17.8%	24.0%	-
Empower India ($EMPOWER)	-3.7%	-13.2%	-32.6%	23.9%	-
Hexaware Technologies ($HEXAWARE)	34.3%	17.3%	13.0%	21.0%	-
Tech Mahindra ($TECHM)	6.8%	25.2%	174.0%	20.1%	-
Median (22 companies)	19.7%	20.4%	13.5%	7.2%	14.8%
Mindtree ($MINDTREE)	-	23.2%	28.8%	17.0%	31.8%

Top companies by Gross margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Tata Consultancy Services ($TCS)	-	-	47.4%	42.4%	43.9%
Infosys ($INFY)	41.3%	98.1%	35.9%	38.3%	37.4%
Wipro ($WIPRO)	29.2%	30.4%	32.0%	31.6%	-
Median (3 companies)	33.8%	64.2%	35.9%	38.3%	40.7%
Mindtree ($MINDTREE)	31.5%	36.2%	-	34.8%	32.4%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Oracle Financial Services Software ($OFSS)	35.3%	35.2%	37.4%	39.7%	-
Infosys ($INFY)	31.6%	27.9%	26.3%	27.1%	27.1%
Tata Consultancy Services ($TCS)	29.5%	28.6%	30.7%	26.1%	28.2%
Wipro ($WIPRO)	19.1%	20.9%	22.4%	22.3%	-
Sqs India Bfsi ($SQSBFSI)	10.6%	18.8%	20.5%	19.4%	-
Median (25 companies)	15.1%	16.5%	18.3%	12.3%	15.3%
Mindtree ($MINDTREE)	15.1%	19.8%	20.6%	20.3%	17.7%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Ramco Systems ($RAMCOSYS)	-	22.1%	15.3%	12.4%	-
Niit Technologies ($NIITTECH)	5.9%	4.6%	6.1%	7.9%	-
Financial Technologies (India) ($FINANTECH)	8.9%	11.4%	-	6.5%	5.4%
Tech Mahindra ($TECHM)	5.4%	2.6%	5.0%	5.0%	-
Hexaware Technologies ($HEXAWARE)	3.8%	1.8%	2.3%	4.4%	-
Median (20 companies)	3.9%	3.2%	2.6%	3.1%	4.4%
Mindtree ($MINDTREE)	2.5%	4.5%	5.0%	5.6%	3.4%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Tata Consultancy Services ($TCS)	48.6%	48.4%	50.2%	40.5%	44.4%
Hexaware Technologies ($HEXAWARE)	33.5%	39.2%	34.7%	35.7%	-
Sqs India Bfsi ($SQSBFSI)	12.1%	27.0%	29.4%	30.6%	-
Tech Mahindra ($TECHM)	15.4%	20.1%	43.0%	29.7%	-
Cmc ($CMC)	26.2%	33.2%	35.3%	26.0%	-
Median (30 companies)	19.1%	20.4%	22.9%	20.6%	25.3%
Mindtree ($MINDTREE)	24.9%	34.6%	36.2%	32.0%	28.9%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
3I Infotech ($3IINFOTECH)	8.5x	20.3x	27.7x	14.7x	-
Ramco Systems ($RAMCOSYS)	8.8x	-	27.6x	4.2x	-
Onward Technologies ($ONWARDTEC)	2.4x	2.2x	4.1x	1.9x	-
Kpit Technologies ($KPIT)	0.3x	0.5x	0.7x	0.4x	-
Mphasis ($MPHASIS)	-0.1x	0.2x	-	0.2x	-
Median (23 companies)	-0.1x	-0.2x	-0.3x	-0.2x	-0.2x
Mindtree ($MINDTREE)	-0.0x	-0.2x	-0.2x	-0.5x	-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.