BSE SENSEX
28,183
S&P CNX
8,711
MindTree Consulting
CMP: INR616
TP: INR600 (-3%)
Neutral
Orchestrating Digital Transformation…
…through collaboration and ‘anchor’ partnership with customers
8 August 2016
Update
| Sector:
Technology
Motilal Oswal values your support
in the Asiamoney Brokers Poll
2016 for India Research, Sales and
Trading team.
We
request your ballot.
We attended MindTree Consulting’s (MTCL) analyst meet, where the company
showcased its Digital offerings and differentiated approach in Legacy. The
transformation-led approach has been resulting in substantial progress in output
metrics like successful account mining and higher composition of revenue from
Digital (38% of revenue in FY16).
The company maintained its goal of achieving industry-leading revenue growth and
profitability expansion via Clear Strategy, Agile Structure and Disciplined Execution.
The accelerating trend of Digital becoming mainstream and the increasing adoption
of new technologies bode well for MTCL, given the less baggage in Legacy and
prowess in Digital.
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, (INR m)
Free float (%)
Financials Snapshot (INR b)
Y/E Mar
2016
Well placed to ride the Digital wave…
MTCL IN
167.7
804/549
-10/-34/-5
103.3
1.5
365
86.3
The demand environment has been fogged on account of macroeconomic
uncertainty, delayed decision making and increasing competition. However, the
industry offers multiple avenues of growth as Digital becomes mainstream and
adoption of new technology remains strong. As long as service providers are able
to define a clear strategy, have an agile structure and execute in a disciplined
manner, they will be able to adapt to environment changes. MTCL, to this extent,
is well placed to capture demand from newer areas.
2017E
2018E
…through a targeted and focused approach
MTCL’s strategy to focus on select verticals/horizontals and become a leader in
those intersections has been in line with its goal to deliver industry-leading
growth and scale up in size. It has been keeping a check on the relevance of its
strategy and solutions through customer acceptance and analyst recognition.
Recent acquisitions have been focused on augmenting specific capabilities that
are in sync with the overall strategy. This has helped expand its new offerings
and enabled cross-selling of services to existing and new customers.
Net Sales
EBITDA
Net Profit
EPS
EPS Gr. (%)
BV/Sh. (INR)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
46.9
8.3
6.0
35.9
19.3
142.4
17.2
4.3
27.4
30.6
56.1
8.7
5.5
32.5
-9.4
161.2
19.0
3.8
21.4
24.9
65.7
11.2
7.1
42.5
30.9
189.3
14.5
3.3
24.3
30.0
Digital offerings based on four themes
Digital at MTCL is a combination of the following four themes:
[1] Creating digital customer experience:
The service delivery focus is centered
on customers’ customers. MTCL has been driving digital marketing programs for
customers, as well as development across channels, platforms and devices with
speed and its rich experience.
[2] Digitizing value chain:
This involves connecting back-end systems to bring
forth its ability to deliver front-end digital solutions.
[3] Developing sense and respond systems:
Offers greater ability to deliver
predictive insights, which go beyond data analytics of existing data.
Shareholding pattern (%)
As On
Jun-16 Mar-16
Promoter
13.7
13.8
DII
7.2
6.3
FII
40.9
41.8
Others
38.2
38.2
FII Includes depository receipts
Jun-15
13.7
7.4
37.9
41.1
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530
Sagar Lele
(Sagar.Lele@MotilalOswal.com); +91 22 6129 1531
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

MindTree Consulting
[4]
Shaping innovative business models and partnerships:
Born-in-the-cloud
Stock Performance (1-year)
startups are challenging the status quo in multiple industries. This compels existing
leaders to transform their business models using technology to remain competitive.
Prowess evident through output metrics
MTCL has been judging its progress in Digital through account mining and the
composition of Digital in total revenue, which was at 38% in FY16. It has been
differentiating itself from competitors through a multi-faceted approach which
spans across the areas of experience, design, domain/expertise, data, analytics,
agile, DevOps and continuous integration. Also, the approach is aimed at becoming
the ‘anchor’ partner to orchestrate Digital change. It has ~5,600 Digital experts, and
a practice that spans across 198 clients.
Investing in the next generation…
While Digital is currently relevant to changes seen in the technology landscape and
hence to clients, MTCL has already started stepping into new horizons by investing
in the next wave of technologies like Blockchain and Virtual and Augmented Reality.
The company’s technology division has been actively investing in and building
solutions in the areas of [1] IoT solutions, [2] Cognitive automation, [3] Chatbots and
[4] Autonomic computing.
…while simultaneously re-defining the old
Two major trends that have been prevailing in the industry are (1) IT provider
market getting increasingly fragmented and (2) IT getting highly departmentalized
within organizations. MTCL’s course toward this market is to take a composable
approach to developing solutions in a unified and continuous manner (DevOps, agile
and automation) across the full IT stack (development, maintenance, testing,
package and infrastructure). It has been re-imagining end-to-end solutions by
providing IT as-a-service, API-driven composable platforms and continuous
automation. It also showcased its CAPE platform that integrates different
services/components on a single platform, automating delivery.
Confident of maintaining industry-leading growth
MTCL is confident of achieving industry-leading growth and believes that it is well
placed to execute this in a profitable manner. Higher proportion of revenue from
Digital, deep-rooted product engineering expertise, industry-specific IP and platform
and ‘anchor’ partner positioning to orchestrate Digital change have been working in
its favor. Strategy execution has been progressing well, given targeted and focused
acquisitions, successful account mining and investments on training/reskilling its
workforce.
8 August 2016
2

MindTree Consulting
Exhibit 1: High composition of Digital in total revenue
Digital Revenues
In USD m
32
32
33
33
32
34.7
% of Revenues
36.6
36.1
38.6
39.9
42.5
45.2
48.5
48.7
47.3
53.8
66.0
66.6
71.2
73.6
Source: MOSL, Company
Exhibit 2: Leading to industry-leading revenue growth
Revenue (USDm)
100
80
60
40
20
-
26.5% 27.9%
21.8%
14.3%
7.0%
8.5%
14.4%
Growth (YoY, %)
19.9% 19.5%
12.8%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Source: MOSL, Company
Exhibit 3: Deal wins have consistently exceeded revenue providing strong visibility
320
270
220
170
120
Deal Wins (USDm)
Revenue (USDm)
Source: MOSL, Company
8 August 2016
3

MindTree Consulting
Exhibit 4: Digital has been a key driver of new deal wins
Deal Wins (USDm)
300
250
200
150
100
50
0
54.4%
40.2%
30.3%
29.2%
Digital (% of total deal wins)
42.3%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
207.9
193
204
281
220
Source: MOSL, Company
Valuation and view
MTCL has been a focused mid-tier company with play on select verticals (BFSI,
Retail, Travel, Hi-Tech) and services (Digital, IMS, ADM). Its pragmatic strategy
has been backed by strong execution, which has helped the company grow
above industry in its IT Services business – at a CAGR of 17% over FY10-15.
The company remains actively focused on Digital, which continues to grow
ahead of company average. Proportion of Digital to overall revenues has
increased to 39.9% in 1QFY17, from 34.7% a year ago. MTCL has been investing
to improvise its early mover advantage in Digital through 4 acquisitions in the
last one year - around P&C Insurance, SAP HANA, CPG analytics and Salesforce.
We believe that acquisitive intent is the right approach in the Digital
opportunity, and that it will help a player of MTCL’s scale to keep extracting
opportunities to grow its share of clients’ wallet.
With continued traction in Digital / SMAC, MTCL should continue to grow at the
higher end of the industry band if not better – barring risk of slowdown in one
or more of its top accounts. ~40% revenue exposure to Digital augurs well for
company’s growth, and the company continues to actively invest in building
capabilities and leadership in this area. Moreover, Digital is becoming a key
aspect in mining existing accounts, and in getting an entry-point into new ones.
At 19.0/14.5x FY17/18E, EPS, the stock trades well above the average across its
listed history (9 years). We expect the company to grow its USD revenues at a
CAGR of 14.5% over FY16-18E and EPS at a CAGR of 8.9% during this period.
Although it has multiple margin levers in place, especially with current SGA run
rate of ~22% above other companies, and utilization including trainees at ~70%
below peers; pricing pressure in traditional services, and the onsite-centric
nature of incremental business are likely to cap margin expansion.
Although a premium to historical average is explained by: [1] the turnaround
following unfruitful past acquisitions, [2] strong execution in IT Services driving
confidence of above-industry growth, and so also strong book-to-bill in the last
four quarters and [3] capabilities and expansion in Digital, we are reducing our
target multiple to 14x (from 15x previously) to factor the onsite-centricity of
incremental business and the likely cap it puts on the margin trajectory.
Our one-year forward target price of INR600 discounts FY18E EPS by 14x.
Challenges in MTCL’s portfolio of large BFSI and Retail accounts will keep organic
growth under check at least for FY17, limiting the upside to CMP at current
levels. Maintain
Neutral.
8 August 2016
4

MindTree Consulting
Key triggers
Uptick in margins on SGA rationalization and utilization expansion
Steady increase in revenue contribution from Digital
Faster uptick in BFSI/Retail & CPG
Key risk factors
Risk from vendor consolidation as client concentration is high
Margin decline from appreciation of INR
Pricing decline in traditional deals’ renewal
Exhibit 6: 1-year forward PB band
27.3
5.5
4.5
12.3
16.1
3.5
2.5
1.5
4.0
0.5
2.3
0.6
2.5
PB (x)
Median(x)
Exhibit 5: 1-year forward PE band
30
20
10
0
PE (x)
Median(x)
Peak(x)
Min(x)
Avg(x)
Peak(x)
Min(x)
5.1
Avg(x)
3.4
11.2
Source: Bloomberg, MOSL
Source: Bloomberg, MOSL
8 August 2016
5

MindTree Consulting
Story in charts
Exhibit 7: Deal wins continue momentum
Deal Wins (USDm)
281
165
165
152
164
207.9 193
204
220
32
32
Exhibit 8: ..driven by Digital/SMAC based revenues
Digital Revenues
In USD m
% of Revenues
33
33
32
38.6 39.9
34.7 36.6 36.1
42.5 45.2 48.5 48.7 47.3 53.8 66.0 66.6 71.2 73.6
Source: Company, MOSL
Source: Company, MOSL
Exhibit 9: Deal wins have consistently bettered revenue
Deal Wins (USDm)
320
270
220
170
120
Revenue (USDm)
Exhibit 10: Efforts proportion at onsite has increased
steadily…
Efforts mix (%)
Onsite
Offshore
88.3
88.5
87.2
85.7
83.7
82.2
79.5
11.7
FY10
Source: Company, MOSL
11.5
FY11
12.8
FY12
14.3
FY13
16.3
FY14
17.8
FY15
20.5
FY16
Source: Company, MOSL
Exhibit 11: …Putting margins under pressure…
EBITDA margin (%)
SGA (%)
Exhibit 12: …Despite improved utilization
Utilization
Incl. Trainees (%)
79.0
75.5
72.0
68.5
65.0
Excl. Trainees (%)
Source: Company, MOSL; *IND-AS
Source: Company, MOSL
8 August 2016
6

MindTree Consulting
Exhibit 13: Operating Metrics
4QFY14
Geographic Mix - %
US
Europe
India
APAC
Service Line Mix - %
Development
Maintenance
Consulting/IP
Licensing
Package
Implementation
Independent Testing
IM & Tech Support
IP Licensing
Vertical Mix - %
Retail, CPG & Mfg
BFSI
Travel & Hospitality
Hitech & Media
Others
Project Type - %
FPP
T&M
Efforts Mix - %
Onsite
Offshore
Revenue mix - %
Onsite
Offshore
Utilization - %
Including Trainees
Excluding Trainees
Client Metrics
No. Of Active Clients
New Clients added
Client Buckets
USD1m clients
USD5m clients
USD10m clients
USD20m clients
USD30m clients
USD50m clients
Client Contribution %
Top client
Top 5
Top 10
Repeat business
1QFY15
59.2
26.8
3.5
10.5
33.9
20.6
3.8
5.4
15.7
18.9
1.7
21.2
22.7
16.4
32.7
7.0
43.8
56.2
17.0
83.0
44.2
55.8
72.1
72.4
206
3
75
26
13
6
3
0
8.7
32.3
49.0
99.2
2QFY15
60.4
26.1
4.0
9.6
33.4
21.2
4.2
5.4
15.5
18.7
1.6
21.6
22.8
17.1
32.7
5.8
43.6
56.4
17.6
82.4
45.6
54.4
73.5
74.2
200
8
77
27
13
7
4
0
9.1
32.4
48.8
99.7
3QFY15
63.1
24.2
4.1
8.6
34.0
21.4
4.1
5.8
15.4
17.6
1.6
22.2
23.5
16.2
32.7
5.4
46.5
53.5
18.2
81.8
45.8
54.2
71.8
74.2
201
5
83
27
13
6
4
1
9.6
32.5
48.1
99.4
4QFY15
64.9
23.7
3.6
7.8
33.2
20.8
3.9
7.5
17.5
15.4
1.7
21.7
25.0
16.0
32.6
4.7
46.5
53.5
18.5
81.5
47.1
52.9
70.2
71.1
217
8
88
28
14
6
4
1
10.1
32.3
47.3
99.2
1QFY16
67.5
21.9
3.4
7.2
33.4
21.7
3.7
7.2
17.7
14.9
1.4
22.1
26.9
15.6
35.4
0.0
48.9
51.1
18.6
81.4
48.1
51.9
70.3
71.9
218
16
88
28
13
6
0
2
11.0
33.2
48.5
98.9
2QFY16
63.2
26.6
3.2
7.0
3QFY16
63.5
26.4
2.7
7.4
32.0
19.8
2.6
12.9
12.8
18.1
1.8
20.3
25.1
15.6
30.2
8.7
50.0
50.0
21.1
78.9
54.5
45.5
68.5
69.9
294
23
93
29
13
5
0
2
10.9
32.1
46.2
98.5
4QFY16
65.9
24.5
2.8
6.8
33.0
18.0
4.0
13.6
12.6
17.5
1.3
1QFY17
66.7
23.1
3.1
7.1
32.5
17.3
4.1
13.9
12.8
18.4
1.0
24.1
24.9
15.0
36.1
0.0
48.7
51.3
22.9
77.1
59.5
40.5
71.4
72
343
17
98
31
16
5
0
2
13.1
29.6
42.6
98.2
58.8
28.0
3.7
9.4
33.1
22.6
3.8
4.1
16.7
18.6
1.1
22.1
23.3
15.4
31.8
7.4
42.5
57.5
17.2
82.8
43.8
56.2
68.5
68.7
207
15
73
24
13
6
3
0
8.2
33.1
49.2
99.1
31.8
21
.0
2.8
13.3
12.8
17
.0
1.3
20.6
24.7
13.9
30.4
10.5
49.7
50.3
20.0
80.0
52.4
47.6
71.4
73.3
296
18
92
29
13
6
23.8
24.4
16.4
35.3
0.0
47.7
52.3
22.3
77.7
57.6
42.4
69.4
70.6
348
37
101
31
15
6
0
2
11.7
29.7
42.7
96.0
0
2
10.7
31.8
45.5
98.9
Source: MOSL, Company
8 August 2016
7

MindTree Consulting
Financials and Valuations
Key assumption
Y/E March
INR/USD Rate
Revenues (USD m)
Offshore Revenue (%)
Total Headcount
Per Capita Productivity (USD)
Offshore Uilization (%)
Volume growth (%)
Blended Pricing Change (%)
2011
45.6
331
69.8
9,547
34,660
70.2
20.9
0.5
2012
47.6
403
66.4
11,674
34,489
69.9
16.5
4.4
2013
54.2
436
62.4
11,430
38,114
70.4
6.4
1.7
2014
60.4
502
58.2
13,218
37,948
67.8
13.3
1.6
2015
61.0
584
54.3
14,795
39,458
71.9
13.4
2.7
2016
65.6
715
46.6
16,958
42,175
69.9
16.5
5.2
2017E
67.7
828
40.2
18,134
45,662
71.6
11.3
4.1
2018E
70.0
938
39.8
20,281
46,270
72.0
12.7
0.6
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Income Statement
2011
15,091
16.4
1,781
11.8
712
1065.4
4
241
0
1,307
222
17.0
0
1,085
1,085
-49.7
2011
400
7,362
7,762
371
216
8,133
5,624
2,673
2,951
1
7
6,403
0
2,825
1,564
2,014
2,027
167
1,860
4,376
8,133
2012
19,152
26.9
2,930
15.3
695
2230.0
5
385
0
2,615
430
16.4
0
2,185
2,185
101.4
2012
405
9,167
9,572
71
321
9,643
5,820
3,272
2,548
85
7
9,541
0
4,078
3,677
1,786
3,703
137
3,566
5,838
9,643
2013
23,618
23.3
4,860
20.6
624
4226.0
10
10
0
4,236
847
20.0
0
3,389
3,389
55.1
2013
415
12,722
13,137
89
360
13,226
6,457
3,896
2,561
571
230
11,497
0
4,508
5,279
1,710
3,684
189
3,495
7,813
13,226
2014
30,316
28.4
6,102
20.1
809
5289.0
4
496
0
5,785
1,275
22.0
0
4,510
4,510
34.1
2014
417
15,988
16,405
195
402
16,600
6,886
3,621
3,265
496
175
14,688
0
6,004
6,344
2,340
4,393
82
4,311
10,295
16,600
2015
35,619
17.5
7,092
19.9
1,018
6073.0
1
835
0
6,908
1,545
22.4
0
5,363
5,363
18.5
2015
837
19,287
20,124
357
449
20,485
8,879
4,366
4,513
354
8
18,526
0
6,963
9,106
2,457
6,064
536
5,528
12,462
20,485
2016
46,896
31.7
8,299
17.7
1,332
6964.0
3
810
0
7,774
1,741
22.4
0
6,033
6,033
12.3
2016
1,678
22,278
23,956
1,090
602
25,046
10,323
5,698
4,625
232
58
18,148
0
9,728
4,433
3,987
7,941
1,679
6,262
10,207
25,461
2017E
56,051
19.5
8,707
15.5
1,956
6576.6
174
612
0
7,189
1,729
24.1
0
5,460
5,460
-9.8
2017E
1,678
25,415
27,093
626
474
27,719
11,747
7,130
4,617
345
158
21,325
0
11,679
4,852
4,795
9,161
1,916
7,245
12,164
27,719
(INR Million)
2018E
65,690
17.2
11,192
17.0
2,089
9008.8
94
392
0
9,401
2,256
24.0
0
7,145
7,145
31.7
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
(INR Million)
2018E
1,678
30,125
31,803
626
474
32,429
14,457
8,693
5,764
345
158
25,976
0
13,663
7,331
4,983
10,703
2,009
8,694
15,273
32,429
8 August 2016
8

MindTree Consulting
Financials and valuation
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Fixed Asset Turnover (x)
Debtors (No. of Days)
Net Debt/Equity (x)
Y/E Mar
CF from Operations
Cash for Working Capital
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
CF from Inv. Activity
Proc. from equity issues
Proceeds from LTB/STB
Dividend Payments
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2011
6.2
11.0
47.4
2.5
40.3
2012
13.4
17.6
58.3
4.0
29.8
2013
20.4
24.0
78.6
3.0
14.7
2014
26.9
31.7
97.9
6.3
23.2
2015
31.9
38.0
119.8
8.5
26.6
2016
35.9
43.8
142.4
10.5
29.3
2017E
32.5
41.0
161.2
12.0
36.9
2018E
42.5
51.8
189.3
12.0
28.2
45.9
35.1
32.8
5.0
10.6
0.6
22.9
19.4
15.8
3.2
6.3
1.0
19.3
16.2
13.3
2.6
5.1
1.4
17.2
14.1
11.9
2.1
4.3
1.7
19.0
15.0
11.3
1.8
3.8
1.9
14.5
11.9
8.6
1.5
3.3
1.9
15.0
14.3
14.0
5.1
68
0.0
2011
1,277
-844
433
-836
-403
453
-383
139
13
-150
2
56
403
459
25.2
25.1
29.9
7.5
78
0.0
2012
2,551
-523
2,028
-410
1,618
-1,917
-2,327
120
398
-176
342
143
459
602
29.8
37.0
51.0
9.2
70
0.0
2013
3,267
-603
2,664
-1,057
1,607
-862
-1,919
322
-233
-214
-125
650
602
1,252
30.5
35.5
48.1
9.3
72
0.0
2014
4,985
-1,766
3,219
-1,517
1,702
-726
-2,243
63
-252
-924
-1,113
-67
1,252
1,184
29.4
32.8
45.4
7.9
71
0.0
2015
5,546
489
6,035
-1,851
4,184
823
-1,028
420
-4
-1,712
-1,296
3,514
1,184
3,763
27.4
30.6
34.4
10.1
76
0.0
2016
6,555
-1,207
5,348
-1,322
4,026
367
-955
841
-5
-2,129
-1,293
3,100
3,763
2,332
21.4
24.9
23.3
12.1
76
0.0
2017E
6,279
-682
5,597
-1,537
4,060
395
-1,142
0
-4
-2,435
-2,439
2,016
2,332
1,844
24.3
30.0
29.0
11.4
76
0.0
Cash Flow Statement
(INR Million)
2018E
8,316
-630
7,686
-2,710
4,976
620
-2,090
0
0
-2,435
-2,435
3,161
1,844
4,323
8 August 2016
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