Ind-Ra Affirms Mindtree Limited’s Rating at ‘IND AA’; Outlook Stable

Ind-Ra-Hyderabad-30 June 2014: India Ratings & Research (Ind-Ra) has affirmed Mindtree Limited’s (Mindtree) Long-Term Issuer Rating at ‘IND AA’. The Outlook is Stable. A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS

The affirmation reflects Mindtree’s strong credit profile with net adjusted leverage below 1x during FY12-FY14 as well as robust revenue growth of 28% in FY14 (FY13: 23%) driven by devaluation of the Indian rupee. The ratings also take into account the company’s healthy liquidity profile due to negligible debt. Moreover, Mindtree’s position as a leading mid-sized Indian IT services provider with over 58% of its revenue coming in from the US and about 28% from Europe also benefits its ratings.

Margins for a full year narrowed slightly to 20.1% in FY14 (FY13: 20.6%), despite a 11%-12% rupee depreciation, due to wage inflation, increased sales force and an increase in onsite efforts (calculated in terms of manhours spent) leading to higher operating and visa costs.

Ind-Ra believes that the company’s margins will continue to remain under pressure due to wage inflation. Mindtree’s onsite efforts have also increased steadily over FY14 and stood at 17.2% in 4QFY14 as compared to 14.3% in the 4QFY13 resulting in higher other operating costs. Despite these pressures, the company’s credit profile remains strong with cash accruals of INR6.3bn at end-FY14 (FYE13: INR5.2bn; FYE12: INR3.7bn) and negligible debt.

RATING SENSITIVITIES

Positive: Sustained improvement in EBIDTAR margins above 25% or sustained reduction in gross
adjusted debt/EBIDTAR below 0.5x might could result in a positive rating action

Negative: Sustained deterioration in gross adjusted debt/EBIDTAR above 1.5x could lead to a negative
rating action.

COMPANY PROFILE

Incorporated in August 1999, Mindtree is a global information technology solutions company. The company’s revenue grew 28% yoy to INR30.3bn in FY14 and gross adjusted leverage (adjusted debt/EBITDAR) remained stable at 0.6x.  
 
Mindtree’s ratings:

- Long-Term Issuer Rating: ‘IND AA’; Outlook Stable
- INR3,210m fund-based working capital limits (increased from INR2,800m): affirmed at Short-Term ‘IND A1+’
- INR50m non-fund-based working capital limits: affirmed at Short-Term ‘IND A1+’

Contacts:
Primary Analyst
Niraj Rathi
Senior Analyst
+91 40 4025 8622
India Ratings & Research Pvt Ltd
6-3-669, Ozone Complex
1
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Hyderabad 500082

Secondary Analyst
Krishna Chaitanya Nune
Analyst
+91 40 4017 8620

Committee Chairperson
Sreenivasa Prasanna
Senior Director
+91 44 4340 1700

Media Relations: Saraanya Shetty, Mumbai, Tel: + 91 22 4000 1729, Email: saraanya.shetty@indiaratings.co.in.

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.

Applicable criteria, ‘Corporate Rating Methodology’, dated 12 September 2012, are available at www.indiaratings.co.in.

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India Ratings & Research (India Ratings) has six rating offices located at Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad. India Ratings is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

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