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Infotech Enterprises
Pricing increase to help; upgrade to Hold
Infotech Enterprises’ EBITDA margin fell 34bps qoq on account
of higher wage and SG&A costs (following a qoq 557bps fall in
1Q and 50bps in 2Q), even with healthy 14.1% volume for the
UTG vertical (6.5% organic) and 5.2% for EMI. Management
indicated that three large clients have agreed to price hikes of 2-
5%, effective 1 Jan ’11, which we believe would help boost margin.
We raise our target price to `190 from `175 earlier and upgrade
the stock to Hold from Sell.
Key points in 3Q. US dollar revenue grew 10.1% qoq. Infotech
added seven clients in the UTG vertical and eight in EMI.
Geographically, North America grew 7.7%, while Europe grew
1.9%. Infotech holds `3.8bn in cash and cash equivalents
(`34/share).
Change in estimates. We maintain our FY11e earnings, while
lowering FY12e/FY13e earnings 1.2% and 1.3% to `15.2 and
`18.5 respectively.
Valuation and risks. Our price target of `190 comprises `170
(Mar ’12 PE of 12x; 12x maintained) and `20 (valuing the cash
above the average peer cash holding). Our target multiple is at 40%
discount to the average multiple of large-cap IT stocks. Downside
risk: lower-than expected demand and ramp-up in services; Upside
risk: acquisition, leading to higher profitability.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Infotech Enterprises
Pricing increase to help; upgrade to Hold
Infotech Enterprises’ EBITDA margin fell 34bps qoq on account
of higher wage and SG&A costs (following a qoq 557bps fall in
1Q and 50bps in 2Q), even with healthy 14.1% volume for the
UTG vertical (6.5% organic) and 5.2% for EMI. Management
indicated that three large clients have agreed to price hikes of 2-
5%, effective 1 Jan ’11, which we believe would help boost margin.
We raise our target price to `190 from `175 earlier and upgrade
the stock to Hold from Sell.
Key points in 3Q. US dollar revenue grew 10.1% qoq. Infotech
added seven clients in the UTG vertical and eight in EMI.
Geographically, North America grew 7.7%, while Europe grew
1.9%. Infotech holds `3.8bn in cash and cash equivalents
(`34/share).
Change in estimates. We maintain our FY11e earnings, while
lowering FY12e/FY13e earnings 1.2% and 1.3% to `15.2 and
`18.5 respectively.
Valuation and risks. Our price target of `190 comprises `170
(Mar ’12 PE of 12x; 12x maintained) and `20 (valuing the cash
above the average peer cash holding). Our target multiple is at 40%
discount to the average multiple of large-cap IT stocks. Downside
risk: lower-than expected demand and ramp-up in services; Upside
risk: acquisition, leading to higher profitability.
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