Mindtree Ltd – Robust Business With Expensive Valuation

Updated: Jun 9

Company Name – Mindtree Limited (Mindtree)

Current Share Price – INR 4,753 (November 22, 2021)

Market Cap – INR 78,349 cr


1. What is interesting about the stock?

Mindtree stock has strong performance and rich valuation. Mindtree is mid-tier IT company. It has expertise in infrastructure and application catering to Global 2000 clients. It has leading margins (>20%) compared to other mid-tier IT companies.

Company Background

  • Mindtree, a L&T group company, is an international Information Technology consulting and implementation company that delivers business solutions and global software development through 42 offices across 24 countries including India, United States of America (USA), Canada, United Kingdom, Japan, Singapore, Australia, Germany, Switzerland, South Africa, UAE, Netherlands, France, Ireland, Poland and Republic of China

  • Mindtree is a digital transformation and technology services company, helping 270+ enterprise clients from ideation to execution through 23,000 employees

  • For more than two decades, it has helped global enterprises marry scale with agility to achieve a competitive advantage across industry verticals

Business Overview

  • The company is structured into four industry verticals - Retail CPG and Manufacturing (RCM), Banking Financial Services and Insurance (BFSI), Technology Media and Services (TMS) and Travel and Hospitality (TH)

  • Offers’ services in the areas of analytics and information management, application development and maintenance, business process management, business technology consulting, cloud, independent testing, infrastructure management services, mobility, product engineering, and SAP services, amongst others

Historical Growth Rate

  • Last 5 years’ annual growth rate for Revenue is 11.3% and EPS is 15.4%

  • Last 10 years’ annual growth rate for Revenue is 17.5%

Industry Overview

  • The proportion of IT spending on the shift to cloud will speed up as an outcome of the COVID-19 crisis, with cloud projected to make up 14.2% of the total global enterprise IT spending market in 2024, up from 9.1% in 2020. (Gartner)

  • 70.5% of organizations cite improved customer experience as the top factor driving their digital transformation. Going forward, it is expected that there will be greater acceptance of chatbots and AI-driven natural language processing bots which will increasingly embark on the business’s first- and early-stage interactions with customers. (NTT research)

  • Worldwide the cybersecurity market is set to grow by up to 10% in 2021 to top USD 60 Billion. (Canalys)

  • 85% of respondents indicated that an increased percentage of their company’s workforce will work remotely post-pandemic. In the scenario, continuous learning and reskilling are key to improving flexibility and business outcome. Companies are likely to increase their investment in their IT infrastructure, particularly those areas related to risk and crisis management, human capital management, customer experience, and health and safety. (Deloitte’s Q2 2020 CFO survey)

Key Competitors

Key Differentiators or MOATs

  • Born digital: technology company set up 21+ years ago

  • Strategic partner: for transformation journeys across the digital value chain

  • Global footprint: presence across 24 countries enables Mindtree to be closer to their customers and businesses

  • Committed management team: strongly aligned with stakeholders’ interests

  • Strong financials

  • Company is almost debt free

  • Company has been maintaining a healthy dividend payout of 47.62%

  • Traction in multi-year deals client mining, scaling up existing clients to USD 50 million

  • Well poised to clock industry leading double digit growth

  • Expected to maintain 20% plus margins

Management Quality

  • More than 2 years’ average tenure of the top management

  • Mr. Debashis Chatterjee serves as Managing Director, Chief Executive Officer and Director of Mindtree Limited since August 2019. He has served as Executive Vice President and President of Global Delivery at Cognizant Technology Solutions Corporation prior to this. He has also served as Global Leader for the Digital Systems and Technology practice at Cognizant

2. Key Historical Financials

3. What is my view on company valuation?

Mindtree has healthy order book, robust broad-based growth and resilient Balance Sheet and is well positioned to cater to strong demand environment. The rebound from low economic activity has already been captured in the first 2 quarters of this year CY’21.

Company’s revenues are expected to grow faster than the industry average (14.3% vs 12.5% on an annual basis) due to higher growth in cloud, data and experience market segments, its earnings are forecasted to grow slower than the industry (12.1% vs 20% per year).

Valuation looks expensive at current levels:

  • PE vs Industry: Mindtree is expensive based on its PE Ratio (56.5x) compared to the Indian IT industry average 30-35x

  • PEG Ratio: Mindtree is expensive based on its PEG Ratio (4.7x)

  • PB vs Industry: Mindtree is expensive based on its PB Ratio (16.8x)

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Near term challenges in terms of elevated subcontractors’ cost. The company is looking to offset cost challenges through continued fresher’s hiring (2,000 freshers added in last two quarters)

  • Attrition was elevated. The trailing attrition rate for 12 months for the company has gone up sharply to 17.7%. The management indicated that supply side challenges are there but are short-term in nature

About the Author

I have more than 10 years’ work experience in Financial Services Industry. My educational background is ACA, MSc Finance and BE (Electronics and Communication).


I have no stock, option or similar derivative position in any of the companies mentioned since last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purpose and not to be construed as an investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.