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