We retain our ?add? rating on Mindtree and the stock remains our pick in the mid-cap IT space. The company has grown IT services business at a CQGR of 5.2% for the past 10 quarters, which is impressive.
This has been led by focused approach to business, growth in new service offerings and improved client engagement structure. We expect continuation of revenue growth momentum and forecast 12.9% and 13.3% growth, respectively, for FY14 and FY15e. We incorporate our economist?s revised USD-INR rate and raise FY14 and FY15e EPS estimates by 7% and 9%, respectively. Therefore, we revise our 12-month forward target price of R1,050 (R935 earlier), and value the stock at 10x 12-month forward EPS.
Mindtree reported sequential revenue growth of 4.1% to $117.7 million. Revenue growth was led by ramp-up of 4-5 large deals won in the previous quarter. IT services business grew 5.5% Q-o-Q to $83.7 million.
However, the company reported R2.93 crore cash burn at the operating level. Slippages in receivables collection increased debtor days to 77 from 70 in previous quarter. In addition, payout of variable compensation also impacted quarterly numbers. This resulted in cash burn this quarter, which was funded through short-term borrowings. Ebitda margin of 18.4% (down 60 bps Y-o-Y, down 250 bps Q-o-Q), while in line with our estimate, is still a tad disappointing.