MindTree : A Giant in the Making?

Apart from some niche companies like TCS, Wipro, and Infosys, only a small
percentage of companies that have a diversified portfolio of services have been
able to stand up. Among such companies is Bangalore-based MindTree that focuses
on enterprise building and in less than a decade of existence has carved a
position for itself.

Founded in 1999, MindTree Consulting is an international IT and R&D services
company with development centers in India and the US. MindTree has a team of
over 4,000 professionals and offers IT services in application development and
maintenance, business intelligence solutions, ERP and supply chain management,
testing, mainframe, and iSeries support and enhancement. The company also
provides R&D Services in the areas of product and semiconductor design,
operating systems, protocol engineering, embedded applications, product testing,
and licensing of intellectual property.

In 2006, MindTree was awarded the MAKE award for excellence in the area of
knowledge management, and was named the Leading Service Provider in the Human
Capital Development category by Global Services magazine. The International
Association of Outsourcing Professionals rated MindTree among the worlds top
100 outsourcing service providers for 2007.

Chairman and managing director, MindTree Consulting, Ashok Soota co-founded
the company in August 1999 along with nine other industry professionals.

The shareholding pattern as on March 31, 2008 stands with the promoters
holding 35.32%, while FIIs and FIs hold 1.97% and 1.75%, respectively, overseas
corporate bodies hold 34.34%, while the balance is held by individuals and
corporates.

For fiscal 2008, MindTree Consulting clocked net revenues of Rs 739.79 crore
in revenues compared to Rs 590.35 crore in the previous fiscal, a growth of
25.3%. The net profit came in at Rs 103.29 crore compared to Rs 90.0 crore for
the previous fiscal, a growth of 14.48%. The IT services revenue grew by 28.5%
to Rs 572.97 crore, and R&D services revenue grew by 15.47% to Rs 166.82 crore.

During fiscal 2007-08, MindTree entered into a strategic alliance with
Borland Software India, a subsidiary of Borland Software Corporation, to launch
a centre of excellence (CoE) in India. As part of this alliance, MindTree and
Borland will jointly set up a software testing CoE lab at the companys
development center in Bangalore. CIT Group, a global provider of commercial and
consumer finance solutions, and Mindtree announced a sourcing initiative to
improve technology operations and operating efficiencies.

CIT, together with MindTree established an offshore development center in
Bangalore that will initially employ 75 consultants. The consultants will be
responsible for application development and maintenance activities for CITs
finance, sales, collaboration, and corporate IT systems. Also, with a focus on
further strengthening its presence in the European market, MindTree opened its
office at The Hague, Netherlands, last year.

On the acquisition front, MindTree signed a definitive agreement to acquire
100% equity in TES-PV Electronic Solutions (Purple Vision), the India-based,
fully owned subsidiary of TES Electronic Solutions, a global electronic design
and manufacturing services company based in France. MindTree will acquire Purple
Vision in an all-cash deal of $6.55 mn.

Net revenue for the fourth quarter ending March 31, 2008 increased by 30.23%
y-o-y from Rs 156.56 crore the previous year to Rs 203.89 crore. Profit after
tax grew by 45% y-o-y from Rs 24.54 crore the previous year to Rs 35.63 crore.
IT services revenue grew by 38.47% to Rs 162.02 crore, and R&D services by 5.83%
y-o-y to Rs 41.87 crore.

The company and Analog Devices launched a DVR product platform based on
Analog Devices Blackfin processor. By leveraging the performance, flexibility,
and scalability of Blackfin, MindTree delivers a licensable DVR platform
designed specifically for surveillance markets.

MindTree Consulting changed its name to MindTree from April 1, 2008. The
company was also awarded the prestigious Nasscom Innovation Award 2007. The
Nasscom Innovation Award recognizes organizations that come up with new ideas,
products, processes, or technologies that create business impact.

For FY 2008-09, MindTree expects to achieve $228-238 mn in revenues,
indicating a growth of 24-29% at the higher end. PAT is expected to be in the
range of $31.7-33.1 mn, 23-29% growth at the higher end. EPS is expected to be
in the range of Rs 32.7-34.1 mn. The above guidance is on the basis of Rs
39.4/$1.

Shares of Mindtree currently trade at Rs 446, discounting its FY 2009 earning
by 13.8 times, which is in line with some of its larger counterparts. The
investment community thus values the business model framework of the company and
expects it to show similar, if not superior performance, compared to its peers.
While US recession fears and oil price hike have dampened the investment
sentiment we believe that Mindtree will continue to outperform its peers in the
medium term. Outperformer.

Sushanto Mitra

The author is director, Techcap India

sushanto@techcapIndia.com

The views reflected here are of the author and not of this publication. No
liability is accepted for losses based on the information presented here