Mindtree Ltd: IT Stock to look into

Mindtree Ltd is an Indian multinational Information Technology and outsourcing  company, headquartered in Bangalore, India. It is a part of the L &T Group.

The Branding Source: New logo: MindTree

Mindtree continues to be a strategic investment for L&T as reflected in increasing share of IT and technology business (9MFY21: accounts 21% of consolidated revenue and 43% of consolidated EBITDA, FY20: 15%, 22%). Although, with the acquisition of Mindtree, L&T operates three companies - Mindtree, Larsen & Toubro Infotech Limited (LTI) and L&T Technology Services Limited (LTTS) - under the IT & technology segment. But, Mindtree contributes nearly 1/3rd to the revenue and profitability from this segment. Mindtree’s strong strategic importance to L&T is also evident from L&T’s spending of about INR100 billion, which represented around 4% of its total assets in acquiring about 60% stake in Mindtree in 2019.

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1. Brief History of MindTree

mindtree company history

Hostile takeover of Mindtree by L&T

  • L&T bought 20.32% shares in Mindtree from Cafe Coffee Day founder Mr VG Siddhartha for almost Rs 3,269 crores in March 2019.
  • After that L&T announced an open offer to minority shareholders to purchase an additional 31% at 980 a share. L&T also announced to mop up another 15% through open market transactions.
  • Consequently On June 27, L&T gained a controlling stake in Mindtree, with a share of 60.06%.
  • Then on 6 July 2019, Mindtree said its top Executive Chairman Krishnakumar Natarajan, Executive Vice-Chairman and Chief Operating Officer (COO) N S Parthasarathy, and Managing Director and Chief Executive Officer (CEO) Rostow Ravanan stepped down.

About Parent Company

Larsen & Toubro is a USD 14.3 billion technology, engineering, construction, manufacturing and financial services conglomerate, with global operations. Its products and systems are marketed in over 30 countries worldwide. Also, L&T is one of the largest and most respected companies in India’s private sector.

2. Shareholding Pattern

mindtree stock analysis with details of shareholding pattern
mindtree stock analysis with details of shareholding pattern

3. Executive Board of Directors

(i) Mr Anil Manibhai Naik - Non Executive Chairman

Graduated in Mechanical Engineering, Mr. Anil Manibhai Naik has over 50 years of experience. He is also the Chairman of the L&T Group of Companies – the Group that he has served for over five decades and led for the last two.

Described by the media as 'Mr. Infrastructure', and ‘leading the company that is building the India of the 21st century’, Mr Naik has secured several global, national and professional honors. 

(ii) Mr S N Subrahmanyan - Non-Executive Vice Chairman

Mr Sekharipuram Narayanan Subrahmanyan (S N Subrahmanyan) is Chief Executive Officer and Managing Director of Larsen & Toubro Limited.

He holds a degree in civil engineering and also a post-graduation degree in business management. Moreover, he is Vice Chairman on the Boards of LTl and L&T Technology Services and Non-Executive Chairman of L&T Metro Rail (Hyderabad) Limited.

(iii) Mr Debashis Chatterjee - CEO and Managing Director

He holds a bachelor's degree in Mechanical Engineering from Jadavpur University.

He holds over 30 years of experience in the field of IT. DC has earlier worked at IBM, TCS and Mahindra & Mahindra.In his earlier role, as President, Global Delivery and Digital Systems and Technology at Cognizant, DC was responsible for delivery of technology services across all industry segments. Additionally, he drove technology excellence as well as global client organizations. 

(iv) Mr R. Shankar Raman - Non-Executive Director

Ramamurthi Shankar Raman (R. Shankar Raman) is a qualified Chartered Accountant and a also Cost Accountant. Over the past 35 years, Shankar Raman has worked for leading listed corporates in varied capacities in the field of finance. Then, Mr Shankar Raman joined the L&T Group in November 1994 to set up L&T Finance Limited, a wholly owned subsidiary.

(v) Mr Venu Lambu - Executive Director

He holds a bachelor’s degree in electronics engineering from the University of Mysore, India. Also General Management certification from the London Business School. He is also a member of the Forbes Technology Council, and chairs customer advisory councils in North America and Europe. Mr Venu held leadership positions at Cognizant, HCL Technologies and IBM.

(vi) Mr Dayapatra Nevatia - Executive Director and COO

He holds a bachelor’s degree in electronics engineering and a master’s degree in management studies. Prior to joining Mindtree, Mr Dayapatra was the MD and Director of Delivery for advanced technology centers in India for Accenture. Earlier, he was VP at Wipro, leading global delivery operations for the Energy, Natural Resources, Utilities and Engineering & Construction business units.

4. Group Structure

mindtree stock analysis with details of group structure

During FY 20 Bluefin Solutions Limited, UK, Bluefin Solutions Pte Ltd, Singapore and Bluefin Solutions Inc. USA, (the wholly owned subsidiaries, of erstwhile Subsidiary, Bluefin Solutions Limited, UK) were liquidated.

5. Service Offerings by Mindtree

(i) Digital solutions

Mindtree’s services range from strategy, assessment, design, implementation, operation, and support, assisting enterprises on their digital transformation journey. The services in Digital solutions cover: Cloud, Agile, User Experience Design, Application Management Services, Data Analytics, Internet of Things, Automation, The Digital Pumpkin Reliability, Engineering Management Services, Digital Commerce, Business Process Management and many more.

(ii) Operations

Mindtree manages mission-critical applications for some of the world’s most successful companies. Moreover Mindtree have built engineering centers of excellence around Internet of Things (IoT). Thesolutions cover digital consulting, brand assessment, competitor analysis and digital roadmap definition.

(iii) IT consulting

Mindtree’s IT consulting services help organizations better understand emerging technologies, implement agile design principles, and take a strategic approach to adopting tools and methodologies. In IT Consulting, Mindtree provides agile, DevOps, cloud and other services.

(iv) Engineering

In Engineering services Mindtree offers Embedded Intelligence, Product Sustenance, Short-range Wireless, Wireless IP Portfolio, Wireless Lighting Solution and Software-Defined Wide Area Network (SDWAN).

(v) Enterprise software

Mindtree’s IT infrastructure services cater to the changing enterprise needs in the evolving IT landscape. The combine infrastructure management with software-as-a-service (SaaS) applications to optimize performance and availability, as well as quickly remediate issues.

6. Industry served by Mindtree

(i) High Technology and Media (Hi-tech)

Mindtree uses its expertise to enable broadcasters, publishers, gamers, out-of-home services, advertising agencies, and businesses to stay ahead of trends and developments with real-time customer data.

(ii) Retail, CPG and Manufacturing (RCM)

Mindtree helps retailers transform their technology to gain a 360-degree view of consumers and serve them across the entire purchase process using retail supply management and retail consulting. The packaged goods industry is also undergoing transformational changes to create new business models, optimized processes, innovative products and hyper-personalized consumer engagements at each touchpoint to drive growth.

(iii) Banking, Financial Services and Insurance (BFSI)

To shape the future of banking, Mindtree work with our banking customers to provide scalable services, manage and execute strategic initiatives, and create innovative delivery models–like omni-directional banking. Mindtree also works to provide evolving businesses with insurance solutions that make digital real and help keep pace in a transforming industry.

(iv) Travel and Hospitality (TH)

Mindtree delivers digital transformation and technology services for the transportation as well as logistics industry including air, rail, road, shipping and logistics.

(a) Mindtree Revenue by Industry

mindtree stock analysis with details of revenue distribution as per industries served
RCM = Retail, Consumer Products & Manufacturing
BFSI = Banking, Financial Services & Insurance
CMT = Communication, Media & Technology
TTH = Travel, Transport, Logistics & Hospitality

For the full year FY21, communications, media and technology grew 20.7%; retail, CPG and manufacturing grew 0.6%, while other showed the de-growth. However the company’s presence in the diversified segments will ensure wider client outreach and help it offset the impact of one segment from incremental revenue from the other segment. Moreover, a significant digital presence will ensure strong momentum in revenue growth.

Digital business contributes 38.16% of the total revenue of MindTree.

(b) Revenue distribution by Geography

mindtree stock analysis with details of revenue distribution as per geography

On geographical front, North America (77% of revenue) improved by 4.3% QoQ, Europe (7.5%
of revenue) grew by 15.9% QoQ, APAC Or ROW business ( 13% of revenue) grew by 6.5% QoQ
in CC terms for FY21, Quarter 4.

However, Mindtree's dependence on the US market is high, with around 77% of the revenue coming from the US. Such high dependence raises risk of geographical concentration to some extent. Even though, there exist no signs of falling US business/revenue. US is the largest importer of IT services in the world.

7. Key Operational Parameters

(i) Location of Employees

mindtree stock analysis with details of onsite and offshore revenue mix

(ii) Employee Statistics of Mindtree

mindtree stock analysis with details of employee metrics
mindtree stock analysis with details of employee utilization and attrition

A high utilization rate brings higher margins due to better efficiency. But it should be noted that very high utilization burns out employees and also reflects diminishing bench strength. IT service providers with very high existing utilization will struggle to serve newer engagements as they would not have people to deploy. Mindtree's employee utilization rate increased through Q4 FY20 to Q4 FY21.

Moreover, the attrition rate decreased through the previous quarters which shows the efficient utilization of employees. The attrition rate for the previous quarter of Mindtree is lower than the attrition rate of its key competitor Infosys.

(iii) Employee cost of MindTree

mindtree stock analysis with details of employee cost analysis

(iv) Client Contribution to revenue

mindtree stock analysis with details of revenue contribution as per clients

Top 10 clients contribute around 47% of the total revenue of the company. Moreover, the revenue from non-top clients rose at 8.6% sequentially compared with 3.3% increase from top clients in FY21. All incremental revenue growth during FY21 has been driven by its top client (Microsoft), which formed 28% of its turnover in 4QFY21.

8. Key Competitors of Mindtree who hold major market shares


TCS Embarks on a New Brand Direction to Power its Next Horizon of  Transformation-led Growth

Tata Consultancy Services is an IT services, consulting and business solutions organization that has been partnering with many of the world's largest businesses in their transformation journeys for over 50 years. The company generated consolidated revenues of US $22 billion in the fiscal year ended March 31, 2020.


Infosys - Media Resources | Infosys Logo | Campus

Infosys is a global leader in next-generation digital services and consulting. The company is the second-largest Indian IT company after TCS by 2020 revenue figures and also the 602nd largest public company in the world according to Forbes Global 2000 ranking.


Wipro | Digital, Technology, Business Solutions

Wipro is a leading global information technology, consulting and business process services company. It harness the power of cognitive computing, hyper-automation, robotics, cloud, analytics and emerging technologies to help clients adapt to the digital world. Moreover, Wipro have over 190,000 dedicated employees serving clients across six continents.


The Next Applied

Mphasis applies next-generation technology to help enterprises transform businesses globally. Customer centricity is foundational to Mphasis and is reflected in the Mphasis’ Front2Back™ Transformation approach. Mphasis built strong relationships with marquee clients.

9. Financial Parameters & key ratios

(i) Net Sales

mindtree net sales growth over last 10 years

The Net sales for FY21 grew at 2.62% which is subsequently less as compared to previous year. However in last two consecutive quarters of FY21 that us Q3 FY21 and Q4 FY21, company's revenues improved. Moreover, management is very confident about the revenues of FY22 due to major deal wins in FY21 which will certainly add revenue in coming years.

(ii) Operating Profit

mindtree stock analysis with details of operating profit growth in last 10 years

The company's endeavor is to deliver double digit growth in FY22 while sustaining EBITDA at 20% plus levels. For FY21, EBITDA margin is 20.8%. Moreover, company's Free Cash Flow/EBITDA ratio for FY21 is 116.4%.

(iii) Profit After Tax

mindtree stock analysis with details of PAT growth over last 10 years

PAT increased by 76% which was Rs 631 crores in FY20 to Rs 1,111 crores FY21 . This was primarily due to higher operational income and lower expected tax rate.

(iv) Free Cash Flow

mindtree stock analysis with details of free cash flow analysis

For FY21, FCF stood at 1928.2 crores, an increase of 175% YoY. In addition, the FCF/PAT ratio for FY21 stands at 174%.

(v) PAT Margin

mindtree stock analysis with details of growth of PAT margin

(vi) EBIT Margin

mindtree stock analysis with details of growth of EBIT margin in last 10 years

(vii) Return on Equity

ROE of Mindtree in last 10 years

(viii) Return on Capital Employed

ROCE of Mindtree in last 10 years

10. Segment Results

mindtree stock analysis with details of segment wise 10 years performance

Communication, media and technology (CMT) segment contributes nearly 50% to Mindtree’s revenue of Mindtree. Over last 4 years, revenue from Communications, media & technology segment grew at a CAGR of 20%. On the other hand, other segments' revenue growth remained around 5-7%.

Moreover, profit (segment results) of Banking, Financial Services & Insurance segment grew at a CAGR of 30% in last 4 years. On the other hand, Profit of retail, CPG & manufacturing segment and the communications/media segment grew at a CAGR of 25% over these years.

However the revenue from Travel and Hospitality sector affected due to various lockdowns. But management believes that this sector will grow in future.

11. Management Discussion & Concall Highlights March 2021

(a) Key Deal Wins

  • Mindtree signed a multiyear engagement with a global leader in design and manufacturing of household appliances to transform the online retail experiences of their users.
  • For a Germany-based leader in building materials and construction systems company, Mindtree will also be providing digital services.
  • It partnered with one of the leading electronic retailers to realize their omni-channel vision for their users.
  • The company has also been chosen as a strategic partner by a leading global travel software and technology company to modernize their passenger reservation platform and accelerate their cloud transformation journey.
  • In addition, Mindtree has been selected by a leading bank to provide Salesforce transformation services across multiple geographies for their Asset Management division.
  • Company recorded new deals worth US$375mn in 4QFY21 vs. US$312mn in 3QFY21, an increase of 20.2% QoQ. Moreover, the total order inflow for FY21 stood at US$1.38bn, up 12%. This constitutes a fair balance of multi-year new deals (3-5 year in duration) as well as renewals.

(b) Growth in verticals

Management believes that BFSI vertical despite its underperformance in Q4 (down 6.6%) is expected to gain momentum as the deals that were delayed, shall come into active pursuit in 1QFY22. Management stated that it expects the TTH (travel & hospitality) vertical to fully recover after 2-3 quarters.

(c) Margin Improvement

Mindtree recorded 18.6% EBIT margin i.e. a decline of 100bps QoQ and an increase of 610bps YoY. However QoQ decline of 120bps in EBITDA margin (21.9%) was driven by an impact of 240bps from planned wage hikes, currency headwinds of 50bps and a tailwind of 170bps from revenue growth and operational efficiency. The management indicated that the increase in travel cost during the quarter was mainly incurred for visa applications scheduled to come up in 1QFY22. The company endeavors to sustain EBITDA margin above 20%.

(d) Good Momentum across Data security and DevOps

As the budgets are getting firmed up, company anticipates good momentum across our clients and especially in the areas of cloud and data security and DevOps. Management also seeing good traction in mid-tier banks.

(e) Employees Addition

The headcount in 4QFY21 increased by 1619 employees QoQ. Moreover, Mindtree is focusing on reskilling its employees in emerging technologies and is gearing up for an increase in hiring due to the robust demand environment. The company also recently rolled out and completed its first increment cycle and planned and factored in a certain amount of selective increment for FY22.

(f) Other Key Highlights

  • Effective Tax Rate for 4QFY21 was lower at 24.2% vs. 26.6% in 3QFY21 and 21.1% in 4QFY20.
  • The TTH vertical was most affected due to lockdown but the company has not lost any client.
  • Management focus and investments in Europe has also begun to yield results. Continental Europe, UK and Ireland together grew 8% sequentially.

12. Opportunities and Strengths

(i) Digital-next, intelligent enterprise for future possibilities

Mindtree plays a pivotal role in its customers’ digital transformation and the experience of their end-users. Digital contributes to nearly 40% of the Company’s revenue and continues to grow. Thus more digital practices based on the emerging technologies come to the fore. Innovative solutions and platforms are being developed around unique customer asks and cross-sector requirements.

(ii) Alliances and partnerships

Mindtree has grown as a trusted service provider for its customers. Mindtree’s proven track record in developing actionable business solutions and their technical implementation has been further accentuated by strategic and consulting partnerships. Mindtree has partner with some of the leading enterprise-level product companies. For instance Mindtree has partnered with Microsoft, Adobe Solution Partner Program. Mindtree is also an Advanced Consulting Partner in the Amazon Partner Network (APN) for AWS and others.

(iii) New Deals

New deals wins by the company will certainly bring new opportunities for the company. During Q4 FY 21 order book for the quarter increased 20% sequentially and is at US $375 million for Q4 FY21. Thus it will surely contribute to the revenue of the company.

(iv) Management's 4x4x4 Strategy

Management reiterated its 4x4x4 strategy, with a focus on four industry groups, four service lines, and four geographies. The company aims to strengthen its position by targeted investments both organic and inorganic. Also, the management stated that further investments will be in building domain strength in industry groups and specifically in healthcare, increasing geographical presence, strengthening alliances and partner ecosystem.

(v) Strong Consolidated Financial Credit Profile

The company also holds a robust financial credit profile attributable to the near zero debt levels and the strong cash and equivalents.

13. Risks

(i) Client Concentration risk

The company depends majorly on its major client Microsoft which contributes around 28% of the total revenue. Thus there is a risk of client concentration. However the management does not thinks of that risks in coming future.

(ii) Competition Risk

Competition risk is high for Mindtree as there are various big companies that are the competitor. For Instance, TCS, Infosys, Wipro are the major competitors having major share in Indian IT industry.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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