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MindTree Limited
Financial Statements Analysis 2008-09
Muthu Subramanian K June 2009Current Market price:
425
Target Price:
~200
Trade Call:
Sell
Investment Risk Level (@ Current price):
High Risk (and High Gains?)
Table of Contents
Profit & Loss Statement (2008-09)......................................................................................................1Balance Sheet (2008-09)......................................................................................................................3Analysis................................................................................................................................................3Initiatives taken by MindTree...............................................................................................................4Comparisons.........................................................................................................................................4Conclusions..........................................................................................................................................4Disclaimer.............................................................................................................................................4
Profit & Loss Statement (2008-09)
One key item to be noted in MindTree's P&L is the Exchange Losses. When a company doeshedging, I would say, it is for avoiding the volatility of the exchange rates. So, it really doesn't makesense to blame the Exchange losses for lower profitability/profits. Whether it is Exchange Profits or Losses, MindTree's
 final 
revenues/margins are well known to the management when they hedge.Also, looking at the P&L statement in the shown way might give a different perceptive than the one portrayed in the Annual Report.Revenues here is income minus exchange lossesSoftware development expenses(In Rupees)Current book value of MindTree share:
Rs. 140
1
Current P/E (by my calculations):
53.52
2
Degree of Financial Leverage:
11.86
Gross margins:
32.54%
 Net Margins:
3.55%
15303578058/379966862425/7.94
Revenues 8,44,05,39,576COGS 5,69,43,73,711Gross Income 2,74,61,65,8651,79,01,40,717PBIT 95,60,25,148Interest 16,19,91,560Depreciation 46,85,79,708PBT 32,54,53,880Tax 8,02,96,923Deferred tax -5,48,95,172Net Income 30,00,52,129N Shares 3,77,84,844Admin & Other expenses
 
Balance Sheet (2008-09)
Re-arranged for comparisons (or for a different perspective).MindTree's current liabilities have more than doubled while current assets have increased only byRs 40 crores. Digging deeper Schedule 10 shows
other liabilities
have increased by almost 150%. Itis difficult to comment without knowing the nature of this liability – but I am taking a pessimisticview on this, otherwise why at all write a major chunk of current liabilities in
other liabilities
? - it ismore than 96.58% of the current liabilities.
Analysis
1.Current utilization levels of MindTree 60-70%. This is currently considered bad whencompared with about 80-85% utilization levels in the industry.2.Top 0.72% of the employees are paid about 4.22% of the salaries. In absolute terms top 54employees are paid about Rs. 16,61,00,000 (in total). This should be good in comparisonwith other IT companies whose top executives are paid more than Rs. 2-3crores each. Onthe pessimistic view this could be because of the size of MindTree.3.Current DFL (which is close to 12) is very high. Hence can be considered very risky and if MindTree's is able to perform well, then high gains as well.4.Similarly, Operating Leverage is also high (considering utilization levels), so expect higher gains with of-course higher risks.5.MindTree's Gross Margins are quiet good, while Net margins are very bad – could be because of unusually high Admin & other expenses (Note: Exchange losses are excluded for this calculation).6.Du-pont Analysis
1.ROE: 0.06
2.Net Income/PBT: 0.923.PBT/PBIT: 0.344.EBIT/Sales: 0.115.Sales/Assets: 1.266.Assets/Equity: 1.267.EBIT/Sales is too low, Again could be because of unusually high Admin/other expenses.7.Current ratio decreased from 2.87 to 1.478.Work-in-progress has considerably fallen. Again, pessimistic view, Lack of work?9.Investments have almost doubled. This is because of MindTree-Aztecsoft merger. Is this awrong-time high-price buy? Only time will tell.
Assets LiabilitiesEquity 37,99,66,860Reserves and surplus 4,92,36,08,198Share capital 3,000Loans 1,39,36,72,670Current assets 3,66,93,23,763Current liabilities 2,49,88,20,621Provisions 16,42,71,368Fixed assets 2,43,79,14,439Investments 3,10,83,60,192Deferred tax assets 14,47,44,323Total 9,36,03,42,717 9,36,03,42,717
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