Stock Picks: Mindtree

Mindtree is a mid-size IT services company.

Strategy:
– Focus on large clients and increase revenue from each client
– Focus on building long-lasting relationships with major clients
– Focus on 4 key business segments
– 35% of its revenue comes from digital business
– Growth from its top clients is one of the best in the industry

Clients:
– Top 10 clients accounted for 46% of its total business
– 6 clients in the $25-million category
– 15 clients in the $10-million category
– Microsoft is one of its top clients
– Key clients in the digital space include Microsoft, Unilever and P&G
– Key clients in the Salesforce space include Nike, Honeywell and Cargill

Management:
– Trustworthy and reliable management
– Growth rate is better than industry average
– 5x return in the last 5 years
– Exited mobile handset business (wrong bet)

Employees:
– Employee friendly company
– Attrition rate is one of the lowest in the industry

Acquisitions:
– UK based Bluefin Solutions, specializes in SAP HANA
– US based Relational Solutions, an analytics provider, primarily for consumer goods
– US based Magnet 360, a Salesforce consulting partner
– India based Aztecsoft, a product engineering business

Risks:
– Indian IT is at an inflection point
– Highly commoditized industry
– Highly competitive market
– Industry growth is slowing down

Valuation:
At current price of Rs 565, the rate of return is 8.4% based on pre-tax earnings to market cap and the dividend yield is 2.8%.

Appendix:

Scorecard:
mindtree-score

10-Year Analysis:
mindtree-10-year
Disclaimer:
MyValuePicks is not a registered investment advisor or broker. Readers are advised that the material contained herein should be used solely for informational purposes. MyValuePicks does not accept responsibility for consequences of financial decisions taken by users on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.

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