India Ratings and Research (Ind-Ra) has affirmed Mindtree long-term issuer rating at 'AA'. The outlook is stable.

The affirmation reflects the company's strong credit profile and liquidity position. Ind-Ra adjusted gross leverage below 1.0x over FY13-FY15. The affirmation also reflects Mindtree's strong liquidity with cash and cash equivalent of Rs 8.2 billion on Jun. 30, 2015 and negligible debt. Revenue growth was robust at 17.5% yoy to Rs 35.6 billion despite a flat currency in FY15.

Mindtree's margins fell further in 1QFY16 to 17.6% after a slight fall in FY15 to 19.9% (FY14: 20.1%). This was because of increasing operating cost driven by wage inflation, increasing onsite efforts which result in higher visa cost and rising proportion of lower-margin fixed price contracts due to competitive bidding. However, the company managed to limit the margin erosion by increasing work force utilisation.

Mindtree's onsite effort steadily increased to 18.6% in 1QFY16 from 15.1% in 1QFY15 while the proportion of fixed price contracts rose up to 48.9% from 40.8%. Utilisaltion levels of its work force were higher at 71.9% for full year FY15 (FY14: 67.9%).

Mindtree's three acquisitions, since the beginning of 2015, will entail a cash outflow of around Rs 6 billion. The company has paid around Rs 4.2 billion till date, while the rest would be spread over FY17-FY19. Ind-Ra believes the cash outflow due to these acquisitions will not have a material impact on the credit profile of the company given its strong liquidity and cash generating ability.

The ratings benefit from Mindtree's position as a mid-sized Indian IT service provider with focus on the US. The proportion of revenue from the US increased steadily to 67.5% in 1QFY16 from 59.2% in 1QFY15 while that from Europe moderated to 21.9% from 26.8%.

Shares of the company gained Rs 27.35, or 2.05%, to trade at Rs 1,359. The total volume of shares traded was 1,847 at the BSE (9.48 a.m., Friday).