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Mindtree demonstrates profitable growth

25-04-2016 • About Mindtree ($MINDTREE) • By InTwits

Mindtree is an attractive growth stock in IT Consulting & Software industry. It showed noticeble revenue performance in the last years among with attractive profitability and financial model.

Growth story


Mindtree showed growth in the last financial year. The company's revenue surged on 31.8% in FY2016. EBITDA also increased: 14.8% for the same period.

In the longer period Mindtree showed fast revenue growth of 25.7% from FY2013 to FY2016 annually. EBITDA surged on 21.1% from FY2013 to FY2016 annually.

Mindtree ($MINDTREE) financials for the last 5 years

mln. INR FY2012 FY2013 FY2014 FY2015 FY2016
Revenue19,09923,53230,31635,46146,730
Revenue growth, %23.2%28.8%17.0%31.8%
Gross margin, %31.5%36.2%34.8%32.4%
SG&A, %20.0%19.0%17.9%18.4%
EBITDA2,8884,6526,2307,2008,264
EBITDA growth, %61.1%33.9%15.6%14.8%
EBITDA margin, %15.1%19.8%20.6%20.3%17.7%
Net Income2,1803,2174,5085,3225,523
Net Income margin, % 11.4%13.7%14.9%15.0%11.8%
 
CAPEX4751,0661,5201,9951,584
CAPEX/Revenue, %2.49%4.53%5.01%5.63%3.39%
Debt56338732173829
Cash6021,2521,1843,7632,332
Net Debt/EBITDA-0.0x-0.2x-0.2x-0.5x-0.2x
 
ROIC, %24.9%34.6%36.2%32.0%28.9%
ROE, %24.9%27.5%30.0%28.2%24.3%

Profitability and return on investment


EBITDA margin declined slightly from 20.3% in FY2015 to 17.7% in FY2016. In the longer period the company's EBITDA margin dropped on 2.10 pp from 19.8% in FY2013 to 17.7% in FY2016.

We call Mindtree an attractive growth stock as together with the growth it delivers high ROIC at 28.9%. During the last three years it dropped - it was 34.6% in FY2013. Average ROIC for the last three years was 32.4%.

Mindtree's Net Income margin dropped on 3.20 pp from 15% to 11.8% in FY2016. If we look for the longer period the company's Net Income margin dropped on 1.90 pp from 13.7% in FY2013 to 11.8% in FY2016.

Mindtree operates at ROE of 24.3%. It's average ROE for the last three years was 27.5%.

Capital expenditures (CAPEX)


The company's CAPEX/Revenue was 3.39% in FY2016. Mindtree's CAPEX/Revenue dropped on 1.14 pp from 4.53% in FY2013 to 3.39% in FY2016. Average CAPEX/Revenue for the last three years was 4.68%.

Leverage (Debt)


The company has negative net debt at -0.2x Net Debt/EBITDA - at the same time with high growth. If we look for the longer period the company showed fast leverage growth of 0.00x from -0.19x in FY2013 to -0.18x in FY2016.

Valuation vs. comparable companies


The market closed today at 13.9x EV/EBITDA for Mindtree which is 43.2% lower than 24.5x IT Consulting & Software peer group avearge calculated on the basis of 102 companies. The company trades at 21.1x P/E which is not surprisingly 33.1% higher than 15.9x IT Consulting & Software industry avearge calculated based on 7 companies.

For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. The market closed today at 17.2x EV/(EBITDA-CAPEX) for Mindtree which is higher vs. -0.9x IT Consulting & Software peer group avearge calculated on the basis of 4 companies.

Management team


Rostow Ravanan is a CEO of Mindtree and Jagannathan Narasimhan Chakravarthi is a CFO.

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, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
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 (21 companies)19.8%20.4%14.0%8.1%15.9%
Mindtree ($MINDTREE)23.2%28.8%17.0%31.8%


Top companies by Gross margin, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top
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, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
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%27.7%
Mindtree ($MINDTREE)15.1%19.8%20.6%20.3%17.7%


Top companies by CAPEX/Revenue, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
Ramco Systems ($RAMCOSYS)22.1%15.3%12.4%
Niit Technologies ($NIITTECH)5.9%4.6%6.1%7.9%
Financial Technologies (India) ($FINANTECH)8.6%11.2%6.5%
Tech Mahindra ($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%3.1%
Mindtree ($MINDTREE)2.5%4.5%5.0%5.6%3.4%


Top companies by ROIC, %

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
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%34.8%
Mindtree ($MINDTREE)24.9%34.6%36.2%32.0%28.9%


Top companies by Net Debt / EBITDA

 FY2012 FY2013 FY2014 FY2015 FY2016
Top 5
3I Infotech ($3IINFOTECH)8.5x20.3x27.7x14.7x
Ramco Systems ($RAMCOSYS)8.8x27.6x4.2x
Onward Technologies ($ONWARDTEC)2.4x2.2x4.1x1.9x
Kpit Technologies ($KPIT)0.3x0.5x0.7x0.4x
Mphasis ($MPHASIS)-0.1x0.2x0.2x
 
Median (23 companies)-0.1x-0.2x-0.3x-0.2x-1.1x
Mindtree ($MINDTREE)-0.0x-0.2x-0.2x-0.5x-0.2x


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