Visit http://indiaer.blogspot.com/ for complete details Strong volume-led revenue growth: For 2QFY2011, Infotech Enterprises (IEL)
reported 16.8% qoq revenue growth to `295.5cr. Growth was led by qoq volume
growth of 15.8% and 13.0% in the utility, telecom and government (UTG) and the
engineering and mechanical (EMI) segments, respectively. Growth in the UTG
segment was impressive because of the 9.4% qoq volume growth due to Wellsco’s
acquisition (integrated since August 9, 2010) and 6.4% organic growth.
Disappointing operational performance: IEL’s EBITDA margin dipped by 50bp to
15.5% due to grid-correction exercise to retain talent, which escalated cost,
impacting margins by 166bp. This, in addition to the integration of Wellsco (with
EBITDA margin ~8% lower than IEL’s average), took away gains that came in
from strong volume growth as well as cross-currency benefit.
Other key highlights: During 2QFY2011, IEL added 12 new clients, 7 in UTG and
5 in EMI. The company made net addition of whopping 454 employees (including
229 from Wellsco).
1,678 (end of 1QFY2011) to 2,775 on the back of higher demand for
engineering services by hi-tech and heavy engineering industries. We expect IEL to
record a 24.5% revenue CAGR over FY2010–12E on the back of strong inorganic
growth due to Daxon and Wellsco acquisitions aiding growth, while net profit
growth will be subdued at a 4.4% CAGR mainly on account of lower orbit for
operating margins. Thus, we recommend Accumulate on IEL with a Target Price of
`184, valuing the stock at 11x FY2012E EPS of `16.8 i.e., at 50% discount to
Infosys’ target multiple of 22x.
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