Mindteck India

 

 

After passing through a tough phase, Mindteck is geared up for a turnaround in its operations

   GLOBAL mid-tier IT services and consultancy firm Mindteck (India) has undergone a phase of consolidation over the past six quarters. The company is expected to be back in growth track after witnessing a fall in revenues and a loss at the net level in the past. Focus on its core business of engineering solutions and strategic partnerships with global technology leaders are the likely growth drivers going ahead.

BUSINESS:

Bangalore-based Mindteck India, (formerly known as Hinditron Informatics) was incorporated in 1991. It offers business and engineering solutions to enterprises across the world. The company provides end-to-end IT services, IT infrastructure, security and managed services, consulting services and product engineering in the embedded space.

   Mindteck's customer base is spread across various industry segments including public sector, high technology and manufacturing. Mindteck has four development centres across the US, India and Singapore. Over 80% of its revenue comes from the US market.

   In FY09, the company brought all its subsidiaries including Mindteck Singapore, Mindteck UK, Chendle and Primetech Solutions USA under the same umbrella by acquiring 100% stake. The move was a strategic decision in order to strengthen its revenue and delivery capabilities across North America, Europe, and the Middle East and Asia Pacific regions.

GROWTH DRIVERS:

Mindteck has recently entered into a strategic partnership with Microsoft in the segments of business intelligence, Windows 7 operating system, and IT infrastructure related technologies, including virtualisation and cloud computing. The alliance has improved Mindteck's visibility and reach in the US as well as the Indian market.

   The company has also started leveraging its alliance with short-distance wireless platform ZigBee. The alliance enables Mindteck to provide solutions in smart energy network management systems. Currently, offshoring forms just over one-third of Mindteck's revenue. It has chalked out plans to increase the proportion of offshoring revenue to 60-65% in next three years. This is expected to improve its operating margin from the current single digit levels.

   In the past six months, the company has reorganised its senior management team by making key appointments in global delivery, finance and legal divisions. This is expected to assist in the long-term sustainable growth.

FINANCIALS:

The consolidated net profit of the company grew at a CAGR of 19% over the past five years. Net profit fell 69% to Rs 3.5 crore in FY10 compares to the previous year.

   During FY10, the company reported a 20% drop in its net sales to Rs 226.5 crore due to a recessionary phase in the US. Operating expenses, however, did not fall in tandem with falling revenue. This resulted into 140 basis points erosion in operating margin.

   For FY11, the management expects to expand operating margin to 10% from 3% in the previous year. Higher offshoring and improved order intake are expected to fuel this expansion.

VALUATION:

At the current market price of Rs 27.3, the scrip is trading at 21 times its trailing 12-month earnings per share. The company expects to cross Rs 300 crore of topline in FY11 with a net margin of 5%. This translates into FY11 estimated P/E of 4.4. While the company is geared for a turnaround in its operations, it needs to be seen how quickly it can resume itself back into profitability.