By Niraj Rathi

India Ratings and Research (Ind-Ra) has affirmed Mindtree Limited’s (Mindtree) Long-Term Issuer Rating at ‘IND AA’. The Outlook is Stable. The instrument-wise rating actions are as follows.

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating

Rating Action

Fund-based working capital limits

-

-

-

INR7,235 (increased from INR2,085)

IND A1+

Affirmed

Non-fund-based working capital limits

-

-

-

INR1,800 (increased from INR1,380)

IND A1+

Affirmed

Commercial paper*

-

-

-

INR3,000

IND A1+

Affirmed

* Carved out of the working capital limits

KEY RATING DRIVERS

Strong Credit Metrics: Gross adjusted leverage (gross adjusted debt/EBITDAR) improved to 0.96x in FY17 from 0.63x in FY16, primarily driven by rent capitalisation amounting to INR6.9 billion (FY16: INR5.6 billion; FY15: 4.4billion).  Ind-Ra notes that further increase in off-balance sheet debt or borrowings or margin pressure might result in gross leverage exceeding the negative guideline, as the headroom for additional borrowing remains limited.

Strong Liquidity: Mindtree had a cash balance of INR9.7 billion in Q1FY18 (FY17: 8.4 billion, FY16: INR4.4 billion). During FY18, Mindtree will spend INR2.7 billion on a share buyback and INR0.45 billion on payouts towards past acquisitions. Its cash generation ability remains strong, indicated by an average free cash flow of INR5.8 billion for the period FY15-FY17.

Established Position: The ratings continue to benefit from Mindtree’s position as a midsized Indian IT service provider with a focus on the digital space, which contributes about 42% to revenue. In FY17, the US contributed 68.2% to revenue, followed by Europe (21.6%), and India and rest of the world (10.2%).

Under-Pressure Margin: EBITDA margin declined to 13.71% in FY17 (FY16: 17.7%) despite 12.8% yoy revenue growth to INR52.9 billion in FY17 (FY16: 31.7%). Revenue growth has decelerated owing to a slowdown in the ramp-up of some projects and others. The key reasons for the decline in EBITDA margin were wage inflation, higher on-site efforts and expenses, and low/negative margin profile of acquired entities. On-site efforts increased steadily to 23.53% in FY17 from 20.50% in FY16.

Ind-Ra expects Indian IT companies to continue to face the challenges mentioned above. Thus, EBITDA margins of such entities would remain under pressure. A partial containment of the pressure on EBITDA margins is possible through increased utilisation of workforce and ability to shift work offsite.


RATING SENSITIVITIES

Positive: An improvement in EBITDA margin or a reduction in gross adjusted debt/EBIDTAR to below 0.5x on a sustained basis could result in a positive rating action.

Negative: Gross adjusted debt/EBIDTAR exceeding 1.5x on a sustained basis could lead to a negative rating action.


COMPANY PROFILE

Incorporated in August 1999, Mindtree is a global IT solutions provider. In 1QFY18, Mindtree’s revenue was INR12.9 billion (1QFY17: INR13.3 billion) and EBITDA margin was 11.13% (14.7%). Moreover, its cash and cash equivalent was INR9.7 billion at 1QFYE18 (FYE17: INR8.4 billion).

FINANCIAL SUMMARY

Particulars

FY17

FY16

Revenue (INR million)

52,364

46,896

EBITDA (INR million)

7,180

8,304

EBITDA margin (%)

13.71%

17.71%

Total debt (INR million)

7,858

6,010

Cash and cash equivalent (INR million)

8,377

4,433

Net debt (INR million)

-519

1,577

Source: Mindtree


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

1 February 2017

27 August 2015

30 June 2014

Issuer rating

Long-term

-

IND AA/Stable

IND AA/Stable

IND AA/Stable

IND AA/Stable

Fund-based facilities

Short-term

INR7,235

IND A1+

IND A1+

IND A1+

IND A1+

Non Fund-based facilities

 

Short-term

INR1,800

IND A1+

IND A1+

IND A1+

IND A1+

Commercial paper

Short-term

INR3,000

IND A1+

IND A1+

-

-


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Niraj Rathi

    Associate Director
    India Ratings and Research Pvt Ltd 6-3-339, Ozone Complex, 1st Floor Punjagutta Main Road Hyderabad 500082
    +91 40 67661912

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121