Stock Analysis Of Mindtree

Incorporated in 1999, MindTree Limited (MindTree) deals in information technology (IT) and allied services. It offers software development services, infrastructure management, technical support services and data and analytics solutions and others. The company is co‐headquartered at Bengaluru (India) and Warren (USA).
It is a mid size IT player, MindTree mainly focusses on three business segments — IT services, product engineering services and wireless services. Under these heads, it offers consulting, application development, data warehousing, business intelligence, infrastructure management, knowledge processing services and others. IT services contributed ~58% of revenue in FY11, PE services ~38% and wireless services ~4%.

Overall Fundamental Rating	1 2 3 4 5
Valuation Rating	1 2 3 4 5

Below is the detailed stock analysis of Mindtree based on 25 fundamental parameters:

Graphs and Analysis Cloud

S.No	Parameter Name	Data	Rating	Remarks %
1	Gross Profit Margin	2008--41% 2009--27% 2010--39% 2011--31% 2012--32%	3	Gross profit margin is healthy.It is more than 30%.It went below in 2009 as there was a forex exchange loss of 176Cr in that year
2	Operating Profit Margin	2008--16% 2009--5% 2010--20% 2011--10% 2012--13%	2	Operating margin is above 10% , in 2009 it went down due to forex loss. Operating Margin is much less compares to other IT majors like Infosys , TCS.Infosys operates at 35% , TCS at 28-29%.The main reason for this difference is that this company has different pricing policy.Billing rates are less compared to Biggies whereas the employee cost and other expenses remain in same ratio. Billing rates in some cases are less than 20-30% from big players like Infosys , TCS
3	Net Profit Margin	2008--14% 2009--2% 2010--16% 2011--8% 2012--11%	3	Net profit has improved in last year.In Q1 Fy13 it was 15% and in Q2 Fy13 it was 12%. Company is recovering from bad times.Quarterly results are now more predictable.
4	Selling , General and Admin expenses	2008--35% 2009--47% 2010--26% 2011--36% 2012--27%	3	SGA expenses are under limit with less 30% of Gross Profit. In 2009 it went up due to forex loss.
5	Depreciation %	2008--11% 2009--16% 2010--12% 2011--14% 2012--11%	2	Depreciation cost is little on a higher side and computers, softwares and leases taking the major depreciation cost.
6	Interest %	2008--5% 2009--37% 2010--2% 2011--4% 2012--0%	5	Company is essentially debt free.It has loans of 137Cr in 2009 which has now reduced to 40cr.
7	Net Profit growth rate for past years	2008--104.18  Growth -71% 2009--30.01  Growth 593% 2010--208.10  Growth -40% 2011--123.10  Growth 77% 2012--218.70	2	Net profit growth rate is not encouraging, in 2009 forex loss of 176Cr.2010 was better with forex gain of 70cr which shot up the profit.In 2011 , forex gain was 15cr compared to 70cr in previous year. 2012 was good.Q1 and Q2 of 2013 are good and if the dollar remains in range of 54-55 then Q3 can show some good amount of improvement
8	EPS growth rate for past years	2008--27.47  Growth -71% 2009--7.90  Growth 566% 2010--52.66  Growth -41% 2011--30.75  Growth 75% 2012--53.94	2	EPS growth has also not been encouraging due to above reasons
9	Dividend History	2008--20.00% 2009--10.00% 2010--30.00% 2011--25.00% 2012--40.00%	3	Dividend is consistent but yield is .5%
10	Inventory	2008--0.00  Growth 0% 2009--0.00  Growth 0% 2010--0.00  Growth 0% 2011--0.00  Growth 0% 2012--0.00		Not applicable for this company
11	Business , Advantage and Quality of Management	Business is to provide IT solutions to clients.Main tasks are application development , maintenance and support.Company has 2 segments :IT services and Product Engineering.IT services business has 65% share and PE has 35% share. IT services business is growing well and is main driver of growth.PE business is facing challenges and it more or less stagnant.	3	Mindtree has good management team.Subroto Bagchi Co-founder and chairman.He is a well known public figure. Krishnakumar -KK is the CEO,MD and co-founder with more than 30 years of experience in IT industry.KK is also the Vice Chairman of NASSCOM. Overall the management team looks good.
12	Current ratio	2008--2.5 2009--1.43 2010--1.6 2011--2.55 2012--2.24	4	Current ratio looks comfortable well above 1
13	Debt to Equity	2008--0.17 2009--0.26 2010--0 2011--0.01 2012--0.05	4	Debt free company having surplus cash.As per Q2 fy13 , company has 438 cr as cash with 331cr invested in mutual funds.Company has equity of 1100Cr as per Q2 Fy13 so cash is in healthy state
14	Debt/Earnings	2008--0.88 2009--4.64 2010--0.01 2011--0.04 2012--0.2		it is nearly debt free company now so very low debt/ earnings
15	Is the Company generating free cash flow? Capital Expenditure?	Capex 2009-- -18.87 2010-- 115.84 2011-- 291.45 2012-- 51.1	4	Company is generating good amount of free cash flow.Operating cash flow looks good in comparison to EBITA , refer to below graph. Free cash flow has been positive and in good amount for last 4 years except for 2009 in which Mindtree acquired Aztecsoft for 291 cr, pune based company.Mindtree holds around 80% stake in Aztecsoft.
16	Return on Equity & Return on assets	Return on Equity 2008--19% 2009--5% 2010--32% 2011--15% 2012--22% Return on Assets 2008--16% 2009--4% 2010--32% 2011--15% 2012--21%	3	Return on equity and return on assets are around 20% which is average
17	graph of stock price	Graph of stock has not been great as there are lot of variations in the earnings. It is strictly following earnings.When earnings are good then price is on high and earnings are bad such as in 2011 then price has declined , refer to attached graph.From Aug 2011 the graph is on uptrend as earnings are increasing consistently	3
18	retained earning growth rate and its use	2008--496.05  Growth 0% 2009--492.36  Growth 23% 2010--606.48  Growth 21% 2011--736.40  Growth 24% 2012--917.10	4	Retained earning has been growing at a good rate.Retained earnings are being mainly used for acquisitions , investment in mutual funds and expansion of gross block. In 2009 , Aztecsoft was acquired for 291 Cr.In Oct 2009 , it acquired Kyocera Wireless for 43 Cr.Some part of the money was used for leasing , buildings , software etc. In last 2 years extra cash was used to invest in mutual funds .Company has around 438Cr in cash and cash equivalents as of Q2 Fy13.
19	P/E ratio	Mindtree has a p/E ratio of 10 as of nov 2012 , which is at discount compared to peers. Big Players Infosys - 14 TCS- 20 HCL - 19 Mid Size companies: Hexaware -10 Geometric - 9	3	So PE of mindtree stands at 9-10 which seems to be justified as the company is mid sized and period from 2008-2010 has not been very encouraging. Company business is much more predictable now , if it shows 3-4 quarters with same performance as Q1 and Q2 of Fy13 then P/E can be upgraded to 12-13
20	intangile assests , brand value and does a company have advantage over others	Mindtree has a strong brand value in mid sized IT space. The one advantage company has is lower pricing.	4	As indicated in point 22 , IT business has now become more or less commodity business , lower pricing can be a boon for the company
21	are insiders buying the stocks , is company buying back shares , are mfs holding this company	Company's Stock is held by more than 20 mutual funds and some of them have upped their stake in Q2 Fy13.	4	Siddartha , founder of CCD has increased his stake from 17.79 to 21.26 in June 2012.He bought at a average price of 610 Rs in june 2012. Foreign institutional investors are heavily invested in the company and now FII investment limit has reached. http://www.business-standard.com/india/news/fii-investment-in-mindtree-hits-trigger-limit-rbi/179540/on
22	Growth type of company and room for expansion Impact of Industry parameters and Government policies	Mindtree is a mid sized company with revenue of 1900 Cr FY12. The company is in growth stage. Revenue for big players are in range of 20000-30000cr so it still has lot of room to expand.		The whole IT industry has now become very competitive in last 4-5 years in which all players like Infosys, TCS , Wipro , Mindtree are providing same types of services like software development , maintenance, application migrations.IT service industry has now behaving like a commodity business in which none of the company have advantage over others. In the whole story , time may be right for small IT companies as their pricing it 20-30% lower than the big players.This is where companies like mindtree, hexaware might click in.
23	do you understand business , do you have edge in this industry,what do you know which market does not know	Neutral on this point as IT industry is the one of the most tracked industry in stock market.Most of the fundamentals and business developments are already factored in the stock price	3	One thing to note here. Big client generally work with more than 1 IT provider. Now Mindtree is also working with other IT players to support client's IT needs and in some cases Mindree share is increasing due to lower pricing and also due to change in strategy of the company to focus on big players.This can go in favour of the company
24	Competition	Infosys: OP Margin - 35% , PE- 14 , Sales 31000Cr. TCS: OP Margin -27, PE -20 , Sales -38000Cr Mid Sized IT companies: Hexaware: NP Margin - 18%, PE - 10 , Sales - 1450 Cr. Persistent: NP Margin -14% , PE -12 , Sales - 1000Cr Mindtree: NP Margin - 11% , PE - 10, Sales -1900cr	3	Mindtree is a small sized IT company so it makes sense to compare it with companies like Persistent , Hexaware instead of Infosys,TCS. Mindtree is a well managed mid sized IT company. Currently almost all big players are operating in range of 25-35% of OP Margin and Mid Sized companies at 12-18%. Mindtree seems to have no competitive advantage over its competitors.
25	what company does ,your story on company , why do you think that company will become better than what it is today, or any other point	Mindtree is a mid sized IT company.Company faced some challenges in past and now it is recovering. It has created a new brand entity by changing its logo.Company is now focusing on big client.Number of clients which were below 1 million USD in revenue has been reduced significantly, number of 20$ mn client are now 4 from 2 in q2 fy12.Share from top 5 client is increasing which shows increasing faith of big clients in the company	4	Concerns: Company is impacted by dollar vs rupee alot.It posted a loss of 176Cr in 2009.It had forex loss of 41cr in Q2 fy13 Not getting big deals:Mindtree has to do lot of work before it can start getting big deals.It has just 4 clients which off more than 20$ mn revenue. Mindtree currently has pricing advantage, it has lower billing rates compared to big players but it could be in problem once big payers starts lowering billing rates to avoid losing clients. Mindtree look strong in mid cap IT space.Its quarterly results are much more predictable now.If the company can keep 3-4 quarters with positive growth then stock can demand P/E of 12-14. Long term story of the company looks promising. Company can give 15-20% return annually over next few years if growth momentum continues

Stock Analysis on Thangamayil Jewellery

Thangamayil is an established player in the city of Madurai and is gradually entering smaller towns around Madurai.It manufactures and retails gold and gold jewellery in and around Madurai, Tamil Nadu. The company opened its first showroom in 2001 and currently has 25 branches.

Overall Fundamental Rating	1 2 3 4 5
Valuation Rating	1 2 3 4 5

Below is the detailed stock analysis of Thangamyil Jewellery based on 25 fundamental parameters:

Graphs and Analysis Cloud

S.No	Parameter Name	Data	Rating	Remarks %
1	Gross Profit Margin	2008--6% 2009--9% 2010--9% 2011--10% 2012--12%	3	Gross profit Margin have been consistent , we can see higher margin in 2010 to 2012 due to rising gold prices. Due to increase in gold prices ,company could see its finished products at higher prices.Gross profit margin in this industry are very low as cost if raw material is generally more than 85% of the sales.It is the nature of jewellery business
2	Operating Profit Margin	2008--5% 2009--7% 2010--6% 2011--8% 2012--10%	3	OP Margin are more or less consistent. Operating margin has increased in last 2 years due to same reason as above
3	Net Profit Margin	2008--3% 2009--3% 2010--3% 2011--4% 2012--5%	3	Consistent and Net Profit margin has also increased due to rising gold procies.But it should be noted here that gross , operating and net profit margin are dependent on gold prices.There is some degree of risk involved here
4	Selling , General and Admin expenses	2008--11% 2009--15% 2010--21% 2011--15% 2012--14%	4	SGA expenses are under control. They are well under 30% of gross profit so it is fine.
5	Depreciation %	2008--2% 2009--2% 2010--2% 2011--2% 2012--1%	4	Depreciation cost is consistent over years and it is well under 7-8% of gross profit
6	Interest %	2008--15% 2009--25% 2010--21% 2011--17% 2012--24%	2	Company has lot of debt which is used mainly for working capital and here it is mainly for purchasing gold.Some amount of debt is also used for opening more stores but this expense is small compared to utilization in working capital.Company has to pay interest on this debt and this interest payment is much above 15%.
7	Net Profit growth rate for past years	2008--6.86  Growth 29% 2009--8.88  Growth 80% 2010--16.07  Growth 94% 2011--31.33  Growth 88% 2012--59.06	4	Net Profit growth has been exceptional.Number of stores has increased from 2 in 2008 to 23 in nov 2012. Net Profit has been growing at a average rate of 70% for last 5 years
8	EPS growth rate for past years	2008--7.91  Growth 23% 2009--9.80  Growth 19% 2010--11.71  Growth 95% 2011--22.84  Growth 88% 2012--43.05	5	EPS has been growing at average rate of more than 50% for last 5 years
9	Dividend History	2008--5.00% 2009--10.00% 2010--40.00% 2011--50.00% 2012--70.00%	4	Company has been paying dividend regularly. Moreover the dividend yield is also good , in oct 2012 it was around 3.14%
10	Inventory	2008--35.60  Growth 80% 2009--64.30  Growth 81% 2010--116.78  Growth 77% 2011--207.75  Growth 77% 2012--369.23	3	Inventory growth is inline with sales and net profit.Inventory has also been increasing as company is opening new stores.In this case inventory is gold which has got real value and moreover this value is increasing by time so inventory is fine here. One risk could be that if there is sharp decline in gold prices then it can impact profitability of the company and can lead to exception loss to the company
11	Business , Advantage and Quality of Management	Management of the company is moving in right direction , more and more stores are being added timely.Company is using ERP for stores and inventory management and also to manage its financials. Management is open in reporting concerns which are present in business.For e.g risk of commodity , risk due to other big competitors are being openly taken in the annual reports.Company is also planning to open its online shopping store and it should be ready by 2012 year end	4	References -http://www.thehindubusinessline.com/companies/jewellery-industry-witnessing-polarisation-says-thangamayil-jmd/article3750247.ece Annual report - fy11 - page 31 to 35
12	Current ratio	2008--7.63 2009--6.84 2010--12.27 2011--9.09 2012--7.23	4	Current ratio is well above 1
13	Debt to Equity	2008--0.7 2009--1.31 2010--0.93 2011--1.37 2012--1.85	2	Debt to equity ratio has been increasing , it is mainly due to opening more and more stores and also for purchasing gold for these new stores.Company is in expansion mode. But debt to equity ratio is still a matter of concern.
14	Debt/Earnings	2008--2.95 2009--4.89 2010--4.36 2011--4.29 2012--4.58	3	Debt/earnings indicates that company has good earning power and it is able to pay off its loans.
15	Is the Company generating free cash flow? Capital Expenditure?	Capex 2009-- 25 2010-- 62.55 2011-- 87.66 2012-- 179.29	3	Company is not generating free cash flow , FCF has been negative for last few years.Below are the numbers: Operating cash flow : 2010 : -34Cr 2011: -36Cr 2012 :-67 FCF 2010: -39Cr 2011: -48 2012 : -106 But most of this money has been used to increase inventory i.e to provide gold to its stores.For e.g in 2011 90 cr of inventory was added , in 2012 52 Cr of inventory is added. It should be fine in this case as inventory which is gold is very liquid and its market value is equal or more than what is stated on balance sheet.In future when number of stores are constant then FCF and OCF should be positive and increasing yoy.We need to watch this parameter in future
16	Return on Equity & Return on assets	Return on Equity 2008--23% 2009--26% 2010--21% 2011--31% 2012--40% Return on Assets 2008--13% 2009--11% 2010--11% 2011--13% 2012--14%	3	Return on equity is good. one reason for having ROE higher has normal is that company is using lot of debt which is making ROE higher.
17	graph of stock price	Company got listed in 2010. Since then stock price has been on upward trend.It was in range of 180 till oct 2012 but after that it has made a good run .This run is mainly due to good results in june and September and also that more and more people are now become aware of the company.	4	Volume was normally in range of 4000 -5000 earlier but in oct -nov 2012 it is in range of 20000-30000.
18	retained earning growth rate and its use	2008--14.24  Growth 68% 2009--23.96  Growth 155% 2010--61.15  Growth 38% 2011--84.49  Growth 56% 2012--132.39	4	Retained earning growth is impressive and retained earnings are mainly used for expansion of new stores as well as purchasing gold for these stores.
19	P/E ratio	P/E ratio in Nov 2012 - 8.5 Sep 2012 - 5 Jan 2012 - 4	5	Company sales have been growing at more than 50% for last 5 years.Net profit has been growing at more than 60% for last 4 years. Thangamayil is small cap company with market capitalization of 450Cr in nov 2012. The company has good potential and it can add more stores which are profitable then stock price can go higher.
20	intangile assests , brand value and does a company have advantage over others	Thangamayil has good brand image in cities of Tamil Nadu. As per company current plan , it wants to cover Tamil Nadu first and then move to other states.	4	Company is more focused on rural urban and semi urban areas and it is a popular brand among people. It is very difficult to build a brand image in big cities. Company plan is to first capture market in small cities and then ride on it brand image to big cities.
21	are insiders buying the stocks , is company buying back shares , are mfs holding this company	Promoters believe in the growth story of the company and have been buying companys shares.	4	promoters holding is increased from 68.81% in june 2012 to 69.23 % in Sep 12
22	Growth type of company and room for expansion Impact of Industry parameters and Government policies	Company is in growth stage. It is mainly operating in Tamil Nadu and can add stores in nearby stores. So next few years are good for expansion.	4	Company is adding more and more stores.It has 23 stores as of nov 2012 and the plan is to have 28 stores by march 2013.
23	do you understand business , do you have edge in this industry,what do you know which market does not know	The business is simple. Purchase raw gold , create jewelery and sell in stores. There is nothing complex about the business.The concern of fluctuation in gold prices is there.The other concern is that it is operating in Tamil Nadu and it has proved itself there.It may also grown in nearby states but its products will be tested in middle and northern parts of India as people have wear different style of jewellery there	4	The big positive with the stock of this company is that it is not tracked by mutual funds and other big players. Once the company becomes popular among biggies then stick price can take a real jump from here and it can reach P/E of 14-15 where other average jewellery companies operate
24	Competition	Big players : Titan: Sales - 8900Cr ,NP margin - 6%, D/E - 0, P/E - 40 Tribhovandas Sales - 1385 Cr, NP margin - 4% , D/E - 1.28 , P/E (nov 2012) -28. Gitanjali Gems Sales - 12498 Cr, NP - 4%, D/E - 1.3 , P/E - 9.5 Among all players in the country , Titan is the market leader with strong brand images.It is nearly a debt free company which is a rare sight in this industry	3	Local Players Madurai has seen the entry of Alukkas Jewellers, Bhima Jewellers andKalyan Jewellers, Lalitha Jewellers, Kirthilal jewellery and themajority of themhavepresence in 15 to 20 other cities. Such new entrants come inwith the financialmuscle that comes out ofmanaging 10 – 15 outlets and hence have the ability to spend heavily on advertising and on maintaining higher levels of inventory. Similar entryby other players inMadurai aswell as other locations targeted by Thangamayil could make businessdifficult andaffect profitability inthe long run.
25	what company does ,your story on company , why do you think that company will become better than what it is today, or any other point	As of nov 2012 , company has 23 stores , giving revenue of about 1350 Cr (last 4 quarters) , NP margin is 5% , Net profit - .4*1350 = 67.5Cr. It has plans to have 28 stores by March 2013.	5	Company is on expansion mode and it has added 7 Brand in this year. If we assume that it adds 5 branches each year for next 5 years then revenue could be in range of 3000Cr , with current margin Profit could become 150 Cr.Assuming PE of 15 as company will have more brand awareness after 5 years then market cap could become 2250Cr.Market Cap in nov 2012 is 450Cr.So potential upside is 2250/450 = 5 times. So if all is well then in 5 years the stock has potential to become 5 times in coming 5 years