Infinite Computers- An outperformer says IDFC research

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Infinite Computers (Infinite) has successfully positioned itself as a credible Tier2 vendor to large
marquee clients. It co-exists with Tier1 vendors in some of these accounts by offering higher value for
money, domain expertise, flexibility, and differentiated services (IMS and IP-leveraged solutions). The
strategy has delivered – while Infinite enjoys deep relationships with large Telecom players like Verizon,
Alcatel Lucent, AOL, etc, it has outpaced industry/ peers with 29% revenue and 99% earnings CAGR over
FY08-10. We concede that there exists risk of high client concentration as also non-sticky nature of
partnership with two global IT services vendors, though Infinite is acquiring new clients (e.g. Motorola)
to mitigate the same. We see 30%+ revenue and ~25% net profit CAGR for Infinite over FY10-12. The stock
is available at attractive valuations of ~7x FY11E and ~6x FY12E EPS. Initiating coverage with
Outperformer and a 12-month price target of Rs260 (10x average FY11-12E EPS vs 11-13x for Tier-2 peers).
A differentiated business model: Infinite offers higher value for money, better management bandwidth,
deep domain expertise and differentiated services to large Fortune1000 accounts. The efficacy of its business
strategy is evident in existing multi-year relationships, recent client adds, (Motorola), co-existence with Tier1
players and industry-leading revenue/ earnings growth. Revenue base is being de-risked by growing
Healthcare/ Manufacturing/ Government verticals, while focus will remain on the Telecom vertical.
Well positioned for sustained outperformance to mid-tier peers: Successful execution of its strategy has
helped Infinite deliver 29% revenue CAGR over FY08-10 (11% for industry and -8% to +5% for peers). Over
FY10-12, we see ~31% revenue CAGR and ~25% net profit CAGR for Infinite, driven by increased exposure
to the high-growth non-ADM services. The company is also exploring new growth avenues for revenuesharing
opportunities (Motorola deal) and Indian power sector (APDRP project for Uttarakhand).
A value + growth story; Outperformer: In view of the good growth prospects, we believe the stock trades at
inexpensive valuations of ~7x FY11E EPS and ~6x FY12E EPS. We value the stock at Rs260 for a 12-month
target price – based on 10x average FY10-11E EPS. Our assigned target valuation is lower than for peers like
Hexaware, KPIT, Patni to account for Infinite’s high client concentration, non-sticky nature of business with
global IT vendors and smaller size. With ~60% upside from CMP, we rate the stock as Outperformer.