Information Technology Industry<br /> IT Services spending by Geography <br />Industry Overview<br /><ul><li>World-wide technology and related products and services spend is estimated to have crossed USD 1.5 trillion in 2009,
Total IT-BPO industry to reach USD 71.7 billion accounting for 5.8% of India’s GDP;
Software and Services export revenues estimated to grow over 16-17% to reach USD 47 billion
Direct employment of nearly 2.23 million</li></ul>Global technology spend forecast<br />Key Growth Drivers<br /><ul><li>Low cost of delivery
Focus on sustainable growth</li></ul>Source:IDC-Nasscom Strategic Review 2010 , 2009<br />TCS AR 2010, Gartner Forecast World Wide IT Spending<br />2<br />29-01-2011<br />Wipro - Mindtree<br />
Acquirer- Wipro Limited<br />Revenue breakdown by Geography and service lines<br />Company Overview<br /><ul><li>Incorporated in 1945 and headquartered in Bangaluru, Wipro Limited , provides comprehensive IT Solutions and Services
The company has presence over 55 countries. The workforce consists of over 1 lakh employees serving over 800 clients
Wipro gets an enviable 95 percent repeat business
World’s first SEI CMM Level 5 Company</li></ul>Company Financial overview (Rs. Cr)<br />Total = Rs.2,77,543 mm<br />Top Management<br />Source: Company reports , Capitaline<br />3<br />29-01-2011<br />Wipro - Mindtree<br />
Wipro loosing its steam, underperforms its rivals and Sensex…<br />Share price performance of major large Cap companies over the last year <br />162<br />128<br />115<br />109<br />Increasing revenue gap with the Indian rivals remains a concern<br />Source: Capitaline<br />4<br />29-01-2011<br />Wipro - Mindtree<br />
The Strong Capital Structure Supports Expansion<br />Capital Structure<br />Sources of funds (INR mm except per share data)<br />Liquidity Analysis<br />Credit availability:<br /><ul><li>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.</li></ul>Source:Wipro Q3 data, Wipro AR 2010 <br />5<br />29-01-2011<br />Wipro - Mindtree<br />
Possible Target – Mindtree Limited<br />Percentage revenue by industry (Q3’11)<br />Company Overview<br /><ul><li>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.
269 customers,48 Fortune 500 Companies</li></ul>Marketable<br />Molecules<br />CRAMS<br />Total = Rs.394 cr.<br />Share price performance of Mid cap IT companies over the last one year<br />Rs.<br />131<br />113<br />106<br />85<br />80<br />43<br />Source:Mindtree company reports, Capitaline<br />6<br />29-01-2011<br />Wipro - Mindtree<br />
Mindtree Valuation - DCF<br />Source: Company reports,<br />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<br />7<br />29-01-2011<br />Wipro - Mindtree<br />
Sensitivity analysis for Beta and Terminal growth rate<br />Terminal growth rate<br />Beta<br />The values denote the intrinsic share price of the company.<br />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<br />Source:Company reports, Capitaline<br />Note: The P/E and EV/EBITDA are forward multiples. They represent the FY12 ie March ‘12 multiples<br />8<br />29-01-2011<br />Wipro - Mindtree<br />
The projected share price is in line with the industry standards<br />Valuation analysis<br /><ul><li>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.</li></ul>Possible concerns about the projections<br /><ul><li>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</li></ul>Source: Capitaline , Mindtree AR, Refer Excel workings for Valuation<br />9<br />29-01-2011<br />Wipro - Mindtree<br />
Synergies<br />=<br />+<br /><ul><li>Entry into PES and R&D Services Domain.
Entry into Wireless and mobility product domain.
Access to the well diversified clients of Mindtree (Volvo, Microsoft, Symantec, HUL, Pepsico etc)
Cross-selling opportunities.</li></ul>Marketable<br />Molecules<br />Total Revenues (TTM): Rs. 14.978 mm<br />Total Revenues (TTM): Rs. 3,04,270 mm<br /><ul><li>One of the largest IT services company in India.
Diversified services offering strong presence in growth area like R&D and PES.
IDC forecasts a five-year CAGR of 14% for R&D/PES
Has grown at a CAGR of 45% over the last eight years (2002-10).
Multiple levers to maintain stable margin with accelerated growth.
Wireless product portfolio.</li></ul>Source:Mindtree company reports, Wipro Company Report.<br />10<br />29-01-2011<br />Wipro - Mindtree<br />
Deal Structure<br />Shareholding pattern of Wipro<br />Shareholding pattern of Mindtree<br />Wipro can buyout the entire 32% promoter stake, followed by a 20% open offer in the market which could give it a controlling stake.<br />It can also look forward towards buying out the entire company if the institutional investors agree to it<br />Total no of shares = 38,63,090 <br />Total no of shares = 38,63,090 <br />Deal type<br />All cash deal<br /><ul><li>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.</li></ul>Mindtree Top Management<br />Top management concerns<br />Mindtree was co founded by 3 ex-Wipro eecutives. As of now , Mindtree has many key members as Wipro alumni including Mr. Ashok Soota.<br />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 .<br />It would be easier for the new management to take strategic decisions without a lot of friction between them<br />Source:Capitaline for ownershi data,, Company AR and Q3 results<br />11<br />29-01-2011<br />Wipro - Mindtree<br />