Company Financial overview (Rs. Cr) Total = Rs.2,77,543 mm Top Management Source: Company reports , Capitaline 3 29-01-2011 Wipro - Mindtree
Wipro loosing its steam, underperforms its rivals and Sensex… Share price performance of major large Cap companies over the last year 162 128 115 109 Increasing revenue gap with the Indian rivals remains a concern Source: Capitaline 4 29-01-2011 Wipro - Mindtree
The Strong Capital Structure Supports Expansion Capital Structure Sources of funds (INR mm except per share data) Liquidity Analysis Credit availability:
The term loans and external borrowings of Wipro require it to maintain certain ratios as covenants. The company has not breached them as of 31/12/2010.
With funds available of more than 67,722 mm, the company should be in a position for acquisitions to the tune of Rs. 25,000 mm without hurting its balance sheet covenants.
Possible Target – Mindtree Limited Percentage revenue by industry (Q3’11) Company Overview
MindTree ,incorporated in 1999, is a global IT Solutions company specializing in IT Services, Independent Testing, IMTS, Knowledge Services and Product Engineering, which comprises of R&D Services, Software Product Engineering and Wireless Products.
The company recorded a net profit of Rs.215 cr. on revenues of Rs.1373 cr. for the year ended 31/03/2010 and Rs.30.5 cr. on revenues of Rs.394.4 cr. for the Quarter ending 31/12/10.
Marketable Molecules CRAMS Total = Rs.394 cr. Share price performance of Mid cap IT companies over the last one year Rs. 131 113 106 85 80 43 Source:Mindtree company reports, Capitaline 6 29-01-2011 Wipro - Mindtree
Mindtree Valuation - DCF Source: Company reports, Note:The data is just a sample of one pair of values of Beta and Terminal growth rate. Please refer to the excel sheet for te entire valuation 7 29-01-2011 Wipro - Mindtree
Sensitivity analysis for Beta and Terminal growth rate Terminal growth rate Beta The values denote the intrinsic share price of the company. The projected share price represents a premium of 16% - 25% to the average price of Mindtree over the last 30 days. The premium is slightly higher but brings to the table a diversified portfolio and new product lines for Wipro Source:Company reports, Capitaline Note: The P/E and EV/EBITDA are forward multiples. They represent the FY12 ie March ‘12 multiples 8 29-01-2011 Wipro - Mindtree
The projected share price is in line with the industry standards Valuation analysis
The acquisition price suggested represents an FY’12 PE multiple in the range of 9.2-10.0 and an EV/EBITDA multiple of 5.3-5.7
Although the multiples are greater than the estimated FY’12 multiples, they are still at a discount to the industry average
Recently Patni Ltd. was acquired by I-Gate which commanded forward multiples of 10 (PE) and 6.5 (EV/EBITDA) respectively.
Possible concerns about the projections
Slower recovery in Europe and US:Due to high exposure to R&D/PES space, a slow recovery or another dip is likely to negatively impact the growth prospect of the company
Backlash against offshore outsourcing: There could be regulatory or visa restrictions and customers might defer decisions, leading to lengthening sales cycles. The possibility of such a backlash in the medium term looks low
Rupee appreciation: A sudden appreciation in rupee could erode the operational growth delivered by the company
Volatility in Margins: The margins of the company have decreased over the last year. The valuations might be dented if they do not improve. Considering that the company has absorbed its restructuring costs due to acquisitions, the margins should improve
Source:Mindtree company reports, Wipro Company Report. 10 29-01-2011 Wipro - Mindtree
Deal Structure Shareholding pattern of Wipro Shareholding pattern of Mindtree Wipro can buyout the entire 32% promoter stake, followed by a 20% open offer in the market which could give it a controlling stake. It can also look forward towards buying out the entire company if the institutional investors agree to it Total no of shares = 38,63,090 Total no of shares = 38,63,090 Deal type All cash deal
The deal would be an all cash deal, with the acquisition price being anywhere in the range of Rs.25,000 mm to Rs. 27,000 mm for a 100 % stake. The price would be in proportionate with the stake acquired
The entire amount should be funded by the balance sheet assets (cash and marketable securities). If any debt covenants are breached (a rare possibility), the company can raise equity for the same but it will dilute the earnings.
Mindtree Top Management Top management concerns Mindtree was co founded by 3 ex-Wipro eecutives. As of now , Mindtree has many key members as Wipro alumni including Mr. Ashok Soota. The new management would have those members on board as well. This could actually be a blessing in disguise as the employees are accustomed to the Wipro culture and can easily adjust . It would be easier for the new management to take strategic decisions without a lot of friction between them Source:Capitaline for ownershi data,, Company AR and Q3 results 11 29-01-2011 Wipro - Mindtree