MindTree reported robust quarter with revenues of $101 million, +9.5% qoq, better than HSBC/Consensus estimate of $99million/$96million. Robust growth in volumes of + 5.9% qoq and a pricing increase of +3.5% contributed to the strong growth.
Ebitda margins expanded 180 bp attributable to currency and utilisation gains. Aided by hedging gains, net profit rose to a record R545 million +58% qoq/ +135% yoy.
Europe was particularly strong at +23.7% qoq despite cross currency.
NA was +6.1% qoq. Total headcount grew by a robust +10.5% qoq.
The company is seeing strong ramp-ups in its large clients as the contribution from top-5 clients has gone up to 28%, from 25% in the previous quarter.
While third volume growth could be softer to Q2, due to seasonality reasons, we believe our FY13e estimated growth of 14% is not aggressive.
Additionally, the full positive impact of rupee depreciation is likely to come inQ3FY12 and overall FY12/13 margin estimates have an upside risk at the current rupee/dollar rate. Finally, the stock is trading at a modest 8x. Our revised FY13e EPS is near 44% discount to its historic range.
We are upgrading MindTree to Overweight as we see upside on the current consensus estimates and expect valuations to expand as well on the back of improving margin visibility.
We continue to value MindTree at 10x FY13e EPS and revise our target price to R470 from R420.
Rupee appreciation, lack of broad-based growth across clients and macroeconomic weakness are all downside risks to out estimates. HSBC