Is MindTree Worth Investing?

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Let’s dig deeper into MindTree Stock Analysis and its future prospects.

Mindtree is an Indian information technology and outsourcing company headquartered in Bangalore, India and New Jersey, USA. It provides digital transformation and technology services from ideation to execution stage, for multinational businesses. The company was taken under the L&T umbrella through a hostile takeover in 2019.

L&T has unmatched capabilities across technology, engineering, construction and manufacturing, and maintains a leadership in all its major lines of business. Read our analysis on L&T here.

The company’s shares have 52 weeks price band of INR 1062-652 and a total market capitalization of INR 120 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 19.41 and a dividend yield of 1.36%

Now, let’s take a deep dive into the fundamentals of the company.

The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. 

The categories are as follows.

  1. Economic Moat
  2. Business Model and Management
  3. Growth Ratios
  4. Profitability Ratios
  5. Cash Flow Ratios
  6. Liquidity and Solvency Ratios
  7. Efficiency Ratios
  8. Valuation Ratios
  9. ROE (Du Pont Analysis)
  10. Future Prospects

(All units are INR Millions except ratios and per share data)

1.Economic Moat (★ ★ ★ ☆ ☆)

The company operates in the IT and digital services industry where market dominance is achieved through scale, workforce, technical-know how and digital infrastructure.

On the scale side, the company has 307+ clients out of which 13+ belong to fortune 100. The company has a total of 41+ offices in 18+ countries and the revenue breakup is such that 77% is from the US, 15% is from Europe and 8% is from APAC.

On the workforce front, the company employs around 22000+ professionals and 764+ bots for automation. The employee utilization is 76.5% and attrition stands at 17.4% which is one of the lowest in the industry.

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The company has established experience in solution architecture, project and program management. Now with the backing of the L&T group the company is looking forward to cost synergy along with market expansion which will drive growth and profitability in the future. Overall the company still does not have a wide economic moat.

Therefore this category gets 3 stars in MindTree fundamental analysis.


2. Business Model and Management (★ ★ ★ ☆ ☆)

The company provides Digital solutions including e-commerce, cloud, data warehousing, ERP and digital transformation services to its clients.

The customer base is such the company has only one $100 million revenue client, one $50 million client, five $25 million revenue clients. It also has 47 and 134 clients in $ 5 million and $ 1 million category respectively. The business model is such that the company is focused on the developed markets and the majority of the revenue (around 92%) comes from the US and Europe.

The revenue distribution is such that the top client contributes 24.8% of the revenue and the top 10 contributes 47.4%. On the industry front, 43% revenue is from the Hi-Tech and Media industry, 20.4% is from BFSI, 20.3% is from Retail and Manufacturing and 16.2% is from the travel and hospitality sector.

Overall the business model is not well diversified across clientele and geography. However, after the takeover from L&T, the company can focus on the niche segments and geographies to grow organically.

Mr Debashis Chatterjee is the CEO and Managing Director of Mindtree. He has over 30+ years of experience in the field of IT, managing large business units, strategic alliances and M & A.

He was appointed to integrate the company under the L&T umbrella. Mr Dayapatra Nevatia is the COO and has 2+ decades of experience across companies like Accenture and Wipro. Overall the company has new management which has to integrate the business after a hostile takeover during the uncertain times of Covid-19 outbreak. This is a cause of concern for the investors.

Therefore this category gets 3 stars in MindTree fundamental analysis.

3. Growth Ratios (★ ★ ★ ★ ★)

MindTree Fundamental Analysis and Future Outlook

The revenue has shown a growth of 20.6% CAGR over the last 10 years. The operating income and net income has also grown at 19.4% and 15% CAGR respectively. This shows declining efficiency for the company. The working capital is also positive and has shown a linear growth. Capital expenditure has also slightly increased with scale. Therefore this category gets 5 stars in MindTree fundamental analysis.


4. Profitability Ratios (★ ★ ★ ★ ☆)

MindTree Fundamental Analysis and Future Outlook

The gross margin has been declining over the years which indicates the increasing cost of services delivered. The other margins along with return on assets have also seen some recovery since FY 2017. The profit margins will get affected due to some extraordinary expenses during the Covid-19 outbreak period. 

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Therefore this category gets 4 stars in MindTree fundamental analysis.


5. Cash Flow Ratios (★ ★ ★ ★ ★)

MindTree Fundamental Analysis and Future Outlook

The net income margin along with Cap-Ex as a percentage of sales have seen a slight improvement in recent years. The free cash flow as a percentage of net income has been positive and the operating and free cash flow growth rate has recovered.

This overall indicates a solid cash flow position for the company. Therefore this category gets 5 stars in MindTree fundamental analysis.


6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)

The current ratio is well above the minimum requirement of 1, which indicates that the current assets are more than enough to meet the short term obligations. 

The quick ratio has also seen significant improvement in recent years. This indicates good liquidity in the company. The financial leverage and debt to equity ratio have been flat as the company does not have any long term debt in its capital structure.

The profitability has also shown recovery which indicates improving solvency for the company. Therefore this category gets 5 stars in MindTree fundamental analysis.

7. Efficiency Ratios (★ ★ ★ ★ ☆)

The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.

MindTree Fundamental Analysis and Future Outlook

Overall the business efficiency has not seen any significant changes over the years and this is because of the nature of the business.

 The payable period has increased from 7 to 20 days along with the receivables days from 73 to 78 days. The cash conversion cycle has also not seen any significant changes over the years and still remains positive. Therefore this category gets 4 stars in MindTree fundamental analysis.

8. Valuation Ratios (★ ★ ★ ☆ ☆)

MindTree Fundamental Analysis and Future Outlook

The company traded at a higher valuation since the 2013 period due to the bull rally in the Indian IT sector. However, the effect on MindTree was not long-term due to its focus was on the US market.

The stock has seen a sharp correction in multiples in 2019 as it has undergone a hostile takeover. The company also has 16.2% of the revenue coming from the travel and hospitality sector which is severely affected due to the Covid-19 crisis. Hence it can undergo further correction in the near future. Therefore this category gets 3 stars in MindTree fundamental analysis.

9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ★)

The financial leverage has been stable over the years and the asset turnover has seen some improvement.The company does not have any long term debt so the interest burden ratio is almost 100%.

The operating margin has seen a small decline over the years but has shown signs of recovery. Overall the company has managed to deliver an improving Return on Equity due to increased asset turnover and profitability. Therefore this category gets 5 stars in MindTree fundamental analysis.

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10. Future Prospects (★ ★ ★ ★ ☆)

Some insights for the coming years from the analysis, management discussions, and con calls are as follows.

  • The impact of COVID-19 would not be significant on existing business, except for some extraordinary expenses. The company, however, has a large exposure to the Travel and hospitality sector which is severely impacted due to the global shutdown amongst the Covid-19 crisis. This can result in some contractual losses in the near future.
  • The new management is looking forward to Margin improvements in the near future. Since the last few quarters, the margins have expanded by 260 basis points. This was led by operational improvement (140bp), currency (50bp), and some projects moving from the transition stage to the steady stage (70bp).
  • Historically, the company’s revenue portfolio was more inclined towards project-based deals with shorter sales cycles. Now the focus is now changing towards more annuity-based deals with continuous year on year revenue generation.
  • Last year, Top client revenue grew by 14% on a sequential basis. The company believes that engaging in multiple business lines of the top account reduces the risk of higher concentration. But however, this does not mean a proper diversification of revenue streams for the company.

Overall the company has good fundamentals and has delivered consistent growth with improving profitability. The future outlook is also stable once the COVID-19 situation clears.

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The revenue growth will see some slowdown in the coming years which will impact the margins, but this is however temporary and the company still remains a good investment for the long term.

Therefore this category gets 4 stars in MindTree fundamental analysis.

Bonus: Mindtree Office Virtual Tour


Overall Fundamental Rating:


Therefore it is a 4-star stock

★ ★ ★ ★ ☆

MindTree Share  
Economic Moat ★ ★ ★ ☆ ☆
Business & Management ★ ★ ★ ☆ ☆
Growth Ratios ★ ★ ★ ★ ★
Profitability Ratios ★ ★ ★ ★ ☆
Cash Flow Ratios ★ ★ ★ ★ ★
Liquidity & Solvency ★ ★ ★ ★ ★
Efficiency Ratios ★ ★ ★ ★ ☆
Valuation Ratios ★ ★ ★ ☆ ☆
ROE (Du Pont Analysis) ★ ★ ★ ★ ★
Future Prospects ★ ★ ★ ★ ☆
Overall Fundamental Rating ★ ★ ★ ★
MindTree Fundamental Analysis


(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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