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2QFY12 US$-denominated revenue growth of 10.6% qoq and an FY12 guidance upgrade is
driven by Intellect, which grew 15% qoq ex pass-through. Margins fell 202bp yoy in 1HFY12, but
we see FY12 catching up on licence revenues. We raise FY12/13F revenues 5%/7% and EPS
11%/5%. Polaris is our top mid-cap pick.
Higher FY12 guidance implies near-term visibility; Intellect to boost 2HFY12 margin
2Q12 revenue growth of 7.6% qoq (ex-pass through) as denominated in US dollars was driven by
Intellect (+14.8% qoq ex-pass through). Management raised US dollar-denominated revenue
guidance by 2.3%, given high near-term visibility (4.5% CQGR, at the higher end for 2HFY12).
EBITDA margin fell 202bp qoq in 1HFY12, but we expect it to catch up in 2HFY12, driven by
high-margin license revenues and a tailwind from INR depreciation. Our FY12F basic EPS of
Rs22.68 (upgraded by 11%) is at the lower end of guidance (which does not factor in INR
depreciation) given inherent volatility in products revenues and a base case of a weak 4Q12 due
to macro risks. Our FY13F US dollar-denominated revenues/INR-denominated EPS rise 7%/5%,
building in better revenue visibility and a working capital uptick in 2Q12. On our conservative
forecasts, the stock trades at 6x FY13F EPS, lower than peers. Margin delivery and cash flow
conversion in 2HFY12 can trigger re-rating, in our view.
Convincing 2Q12 revenue outperformance leads to higher guidance
2Q12 US dollar-denominated revenues rose 10.6% qoq to US$111.3m (we estimated +7.6%
qoq). Ex-pass through, revenues grew 7.6% qoq. Intellect revenues rose 29.1% qoq to
US$30.4m (+14.8% qoq ex-pass through). IT services revenues rose 5.0% qoq to US$81m. FY12
guidance rising 2.3% to US$440m-450m was attributed to traction in license revenues, higher
pricing for new Intellect deals and termination of price discounts.
EBITDA margin subdued; guidance builds in 2HFY12 pick-up even without INR decline
EBITDA margin of 12.2% (-67bp) was impacted by pass-through and direct costs, partly offset by
lower SG&A (151bp). Net working capital (ex-cash and dividend) rose 27% qoq, on more credit
days and unbilled revenues. Property sales of Rs40m (Rs20m in 1Q12) and an FX gain of
Rs134m (Rs56m in 1Q12) also drove PAT up 20% qoq to Rs539m. An FY12 EPS guidance hike
of 3-5% to Rs22.65-23.47 factors in an uptick in license revenues in 2HFY12 and conservatively
a stable INR, contrary to INR depreciation of 10% in 2Q12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
2QFY12 US$-denominated revenue growth of 10.6% qoq and an FY12 guidance upgrade is
driven by Intellect, which grew 15% qoq ex pass-through. Margins fell 202bp yoy in 1HFY12, but
we see FY12 catching up on licence revenues. We raise FY12/13F revenues 5%/7% and EPS
11%/5%. Polaris is our top mid-cap pick.
Higher FY12 guidance implies near-term visibility; Intellect to boost 2HFY12 margin
2Q12 revenue growth of 7.6% qoq (ex-pass through) as denominated in US dollars was driven by
Intellect (+14.8% qoq ex-pass through). Management raised US dollar-denominated revenue
guidance by 2.3%, given high near-term visibility (4.5% CQGR, at the higher end for 2HFY12).
EBITDA margin fell 202bp qoq in 1HFY12, but we expect it to catch up in 2HFY12, driven by
high-margin license revenues and a tailwind from INR depreciation. Our FY12F basic EPS of
Rs22.68 (upgraded by 11%) is at the lower end of guidance (which does not factor in INR
depreciation) given inherent volatility in products revenues and a base case of a weak 4Q12 due
to macro risks. Our FY13F US dollar-denominated revenues/INR-denominated EPS rise 7%/5%,
building in better revenue visibility and a working capital uptick in 2Q12. On our conservative
forecasts, the stock trades at 6x FY13F EPS, lower than peers. Margin delivery and cash flow
conversion in 2HFY12 can trigger re-rating, in our view.
Convincing 2Q12 revenue outperformance leads to higher guidance
2Q12 US dollar-denominated revenues rose 10.6% qoq to US$111.3m (we estimated +7.6%
qoq). Ex-pass through, revenues grew 7.6% qoq. Intellect revenues rose 29.1% qoq to
US$30.4m (+14.8% qoq ex-pass through). IT services revenues rose 5.0% qoq to US$81m. FY12
guidance rising 2.3% to US$440m-450m was attributed to traction in license revenues, higher
pricing for new Intellect deals and termination of price discounts.
EBITDA margin subdued; guidance builds in 2HFY12 pick-up even without INR decline
EBITDA margin of 12.2% (-67bp) was impacted by pass-through and direct costs, partly offset by
lower SG&A (151bp). Net working capital (ex-cash and dividend) rose 27% qoq, on more credit
days and unbilled revenues. Property sales of Rs40m (Rs20m in 1Q12) and an FX gain of
Rs134m (Rs56m in 1Q12) also drove PAT up 20% qoq to Rs539m. An FY12 EPS guidance hike
of 3-5% to Rs22.65-23.47 factors in an uptick in license revenues in 2HFY12 and conservatively
a stable INR, contrary to INR depreciation of 10% in 2Q12.
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