Mindtree is a mid-cap IT company, which unlike traditional Indian IT firms, does not overly depend on its revenues from the banking, insurance and financial institution segment (BFSI). Its focus areas are well-diversified into product engineering services, BFSI, travel and transportation and manufacturing.
Outlook and valuations.
The management expects margins to sustain at current levels going forward in Q4 (given current currency levels). The company has its business model skewed towards discretionary spends. As much as around 45-50 per cent of its revenues are estimated to be derived from discretionary spending. That can be a severe disadvantage in times of IT budget cuts as has been the case in the last couple of years. According to Kuldeep Koul of ICICI Securities, Mindtree should see earnings per share growth of 28.5 per cent in FY14 and at the CMP, the stock trades at 16.4 times its TTM earnings. Buy.
How they did it
* Product Engineering Segment (PES) saw margins going up from 7 per cent in Q1FY12 to 24 per cent currently
* Gross margins improved 30 basis points (q-o-q, December 2012) despite wage hikes. But higher spending on SG&A and rupee appreciation finally led Ebit margins to decline by 160 basis points (q-o-q) though that was still up 3.91% (y-o-y)