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The consolidation in the Indian software services post dotcom bust meant that smaller companies got sidelined and many of them were either closed down or acquired by larger ones, leaving a huge gap in middle markets.

As markets improved, smaller companies realized that with a strong focus on offering specific domain solutions rather than general solutions, was the route to success. Among the companies that realised this early in their life cycle is Bangalore-based MindTree Consulting.

Founded in 1999, MindTree Consulting is an international IT and R&D services company with development centers in India and the US. The company 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. MindTree has consistently been chosen as one of the best employers in several independent surveys during the last three years. The company provides end-to-end project execution through OneShore, a hybrid delivery model.

For the FYn07, MindTree clocked net revenues of Rs 590.3 crore in revenues compared to Rs 448.8 crore achieved in the previous year, a growth of 31.5%. Similarly, the net profit was Rs 90 crore compared to Rs 54.2 crore for the previous year, a growth of 66.1%. The IT services revenue grew by 30% to Rs 445.9 crore while R&D services revenue grew by 37% to Rs 144.4 crore.

During the year 2006-07, MindTree commenced operations in Chennai and acquired land in Bhubaneshwar to build its fifth development center in India. It also opened offices in Dallas, Munich, Stockholm, and Sydney, bringing the total number of worldwide offices to eighteen. Seventeen new customers were added during the recently completed quarter, bringing the current active customer base to 155 for the whole year, including thirty-six Fortune 500 companies. MindTree launched its Infrastructure Management and Tech Support Practice (IMTS). The companys IMTS business undertakes end-to-end responsibility of managing IT infrastructure of global enterprises and provides private-labelled technical support for enterprise class technology products.

Net revenues for the 2nd quarter ended September 30, 2007 increased by 41.2% y-o-y from Rs 153.71 crore the previous year to Rs 181.9 crore. While Profit After Tax (PAT) grew by 31.8% q-o-q and 21.2% y-o-y from Rs 22.40 crore the previous year to Rs 27.1 crore, IT services revenue grew by 15.1% and R&D services by 15.7% q-o-q.

During the quarter, MindTree added twenty-eight new clients taking its active client base to 192. Three of these twenty-eight customers are Fortune 500 companies, including a global financial services firm, a world leader in consumer electronics, and a global beverages leader. With a focus on further strengthening its presence in the European market, MindTree opened its office at The Hague, Netherlands, during the quarter. The company increased its large account portfolio and deepened some of the existing client relationships during the quarter. It has increased the number of $1 mn clients from thirty-four to forty-one. MindTree recruited 784 new employees, taking the total to 4,896 as on September 30, 2007.

Recently, the company announced a major restructuring. These changes will be effective from April 01, 2008 and expand the role of more than 150 leaders throughout the organization. The large-scale changes will facilitate newer business opportunities, building focus on the leadership development. Similarly, 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 SA. MindTree will acquire Purple Vision in an all-cash deal of $ 6.55 mn.

For FY 08, MindTree expects to achieve $17.8-180 mn revenues, indicating a growth of 36% at the higher end. PAT is expected to be in the range of $25.1-25.2 mn, a 26.4% growth at the higher end. EPS is expected to be in the range of Rs 28.9 and 29.5. The above guidance is on the basis of Rs 42.25.

Shares of MindTree currently trade at Rs 510, discounting its FY 08 earnings by twenty times which compares favorably with other companies in the small size sector. Lower margins and uncertainty over the restructuring would, however, limit the further appreciation of the stock over its competitors. Market Performer.

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

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