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Sunday, July 27, 2014

Value Pick - Mar'14 Hits Target! Returns @ 47% in 4 Months

Dear Reader,

We are glad to inform you that Value Pick - March'14 stock - Mindtree has achieved its target price of Rs. 940 (bonus issue adjusted target price, actual target price was 1880). Mindtree has given returns of 47.2% since our recommendation on 23rd Mar'14.

Mindtree recently announced that it has been selected by ING Vysya, as a strategic digital partner for its next generation mobility program. As part of this program, MindTree will help the ING Vysya deliver multi-channel and multi -platform banking experience to its customers while creating a digital roadmap designed to help the bank penetrate untapped markets with a simple yet differentiated service.

Company has announced its 1st quarter results on 17th July'14, net profit of Mindtree declined 4.36% to Rs 129.40 crore in the quarter ended June 2014 as against Rs 135.30 crore during the previous quarter ended June 2013. Marginal decline in profits was due to large forex gain which company had in Q1 of FY 2013-14 as a result of market swing during that quarter. Moreover, sales rose 30.23% to Rs 843.50 crore in the quarter ended June 2014 as against Rs 647.70 crore during the previous quarter ended June 2013.

Company Background:

MindTree Consulting is a mid-size Indian IT and R&D services company. The company has two business units: IT Services and Product Engineering Services (PES). MindTree's IT services business comprises of IT strategic consulting, application development, data warehousing and business intelligence, application maintenance, package implementation and application product engineering. The PES unit is organized into three sub-divisions - R&D services, Software Product Engineering and Next in Wireless (cellular infrastructure development). The company's revenue and net profit grew at annual average rates of around 28% and 66% respectively during FY07 to FY12. 

Company delivers technology services and accelerates growth for Global 1000 companies by solving complex business challenges with breakthrough technical innovations. Mindtree specializes in e-commerce, mobility, cloud enablement, digital transformation, business intelligence, data analytics, testing, infrastructure, EAI and ERP solutions. Company is among the fastest growing technology firms globally with more than 200 clients and offices in 14 countries

Recent Development: (as on 23rd Mar'14)

1. Open market purchase of shares by CEO & MD of the Company

As per the disclosures under Reg. 19(4) of SEBI regulations 1992, Mr. Krishnakumar Natrajan has purchased 3,340 shares of Mindtree at average price of 1381.5 on 19th & 20th March. Total holding of Mr. Natarajan after purchase is increased to 19,98,043 i.e. 4.8%.

Mindtree has corrected almost 20% from its 52 week high of 1727, correction in stock price has been seen considering company Q3 results below expectations (company’s third quarter net profit declined 10 percent year-on-year on foreign exchange losses) and recent appreciation in Rupee. We believe Mindtree valuations at CMP of 1391 are reasonable and is a good investment opportunity for medium / long term investors.

2. Mindtree signs pact with SITA for finance system platform 

Mindtree has inked a deal with SITA for providing application support and evolutionary maintenance services for the strategic finance system (SFS) platform. SITA specialises in providing IT and telecommunication services to the air transport industry. The SFS, based on Oracle's eBusiness suite, consolidates all internal and external finance processing across the globe for 200 countries, encompassing 310 entities, Mindtree said in a statement. Mindtree will provide level 2 and 3 application support for SFS for 3 years, including database administration and monitoring, consulting services and maintenance to improve operational efficiency, application enhancements, customisation and new report generation.

3. Better demand outlook compared to last year

Mindtree expects the financial year ahead to be a much stronger one, citing robust demand outlook. The company also expects the current quarter to be a better one compared to the December quarter. At a press conference, the company said it had won “several” multi-million dollar deals in the December quarter. It added 1 customer is the USD 5 million deal bracket, and also won a deal for payment services from a large financial institution. 
Saral Gyan Recommendation: (as on 23rd Mar'14)

Considering reasonable valuations, good future prospects and management business plans to drive growth, Saral Gyan team recommends buy on Mindtree Ltd for target price of Rs. 1880 (price appreciation of 35% from current market price) over a period of 12-24 months.

Buying Strategy:
  • 60% at Current Market Price - 1391
  • 40% at price range of Rs. 1150 - 1250 (in case of any fall in stock price during market correction)
Portfolio Allocation: 7% of your Equity Portfolio

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