MIND TREE - BUY FOR A TARGET OF 1350

Sales led organization – A strategic shift: The company sales team has been sharpened with more investments to tackle growth. The win rate for the company has improved from 1:12 (24 months back) to 1: 6 (last 6‐12 months). The company has taken following initiatives 1) Sales reorganization – clear delineation of hunters and farmers 2) Marketing transformation for branding and lead generation like conferences, webinars, 3rd party marketing, tools to track leads etc. 3) Structured large account classification & investment 4) New performance measurements structure and new compensation plan to attract top talents (like rewards for must have accounts and large deal wins). We expect focus on selected few logos with high growth potential will give good RoI.

Focus on new logos – Hunters, the new epicentres: The company is through with all sales engine transition in sales team in the US, in the middle of transition in Europe and would take over APac transition next year. The company currently has 40 hunters (FY14) and would hire 10 more in FY15. The focus on hunting has helped improve new logos pipeline by 20% over last 6 months (100% over last 18 months). The company has seen improvement in deal pipeline quality.

Seasonality and slower ramp-up to impact Q3FY15, and bounce back in Q4FY15: MTCL is likely to have strong FY15 beating NASSCOM guidance. However, the seasonality and slow ramp-up would impact Q3FY15, which is expected to grow marginally. Nevertheless, the management expects the growth to bounce back in Q4FY15. We remain confident about the growth prospect of the company in CY15.

investments to continue, but margins likely to be stable: The management highlighted limited room for margin improvement due to continued investment in Europe (esp. Germany, Austria, the Netherlands), along with increasing client mining scope to Top 30 clients (from Top 10 earlier). Moreover, fresher addition in H2FY15 (Q3+Q4FY15: 350+400) and wage hike to 15% workforce in Q3FY15 would put additional pressure on operating margin in the near term. However, continued benefits from pyramid rationalization, SG&A efficiency, and offshore drive would provide tailwinds for operating margin. We expect margin improvement by ~50bps for FY15.

Valuation & Recommendation – Accumulate, Target Price Rs1,350: We expect revenue momentum to accelerate in CY15 with improvement in operating margin expansion at constant currency. We see scope of earnings upgrade from consensus. We upgrade MTCL to “BUY” (from “Accumulate”).