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India Equity Research Reports, IPO and Stock News
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Our discussions with Infotech Enterprises indicate steady
business momentum, especially its engineering business which
is experiencing continued demand traction. Its Network &
Communications (N&CE) business too is on an improving
trajectory with ramp downs in key client largely over and
services mix improving favourably. Strong annuity-based
revenues (~70% of total revenues) coming from long term
service agreements lends decent visibility in times of
uncertainty. OPM appears to have bottomed out in Q1 FY12 and
its outlook remains sanguine with INR depreciation being a
major lever followed by increased offshoring and improving
employee pyramid. Valuations remain attractive. Maintain BUY.
Engineering demand remains robust; Service mix improving
Infotech’s key business segments of Engineering and N&CE continue to
perform well. Its key aerospace clients (55% of Engineering business)
continue to involve the company in long term design/engineering
programs. On the other hand, its N&CE business too has transformed
incrementally moving away from its low-end services. Focused
approach towards top clients, proven delivery (strong referrals) and
high renewal rates adds to the comfort.
Margins likely to have bottomed out
Implementation of wage hikes, integration of low margin acquisitions
and ramp down in key clients had led to strong margin erosion in
FY11. Going forward, reduced exposure to low margin data conversion
business, higher offshoring in key subsidiaries and improving employee
mix along with a weak rupee are expected to expand margin.
Valuations provide an attractive entry point
Infotech’s revenue traction has been consistent in past 6-8 quarters as
it continued to benefit from its well entrenched position as an
engineering services provider for its top clients. OPM which was a
concern over FY11 has shown decent improvement in Q2 FY12 and
should improve going forward. Sustained demand in Engineering
segment (70% of total revenues), improving N&CE segment and
protected margin makes us positive on the company. We incorporate
weaker rupee assumptions in our estimates and maintain BUY
Valuations provide an attractive entry point
Infotech Enterprises has been registering decent revenue growth
supported by sustained demand from its Engineering and N&CE
clientele as well as inorganic traction (primarily Daxcon and Wellsco).
We expect decent traction from the Engineering business largely due
to continued spending by larger clients as well as long term nature of
contracts signed by the company. Its N&CE business too is shaping up
well both due bottoming out of key client (post ramp downs) as well as
improving services mix. OPM too should improve as its key subsidiaries
improve profitability through increased offshoring, stabilizing
businesses as well as SG&A leverage. Rupee depreciation continues to
be a strong lever for the industry and Infotech is no exception.
Increased hedging (from ~US$85mn in Q2 FY12 to ~US$150mn
currently) at higher rates to further benefit the company in FY13/14.
We estimate the company to post 16% dollar revenue CAGR over
FY11-13E with earnings growing faster at 18% CAGR. At 6.7x FY13E
earnings we believe, valuations provide an attractive entry. Maintain
BUY with a 9-month TP of Rs155.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our discussions with Infotech Enterprises indicate steady
business momentum, especially its engineering business which
is experiencing continued demand traction. Its Network &
Communications (N&CE) business too is on an improving
trajectory with ramp downs in key client largely over and
services mix improving favourably. Strong annuity-based
revenues (~70% of total revenues) coming from long term
service agreements lends decent visibility in times of
uncertainty. OPM appears to have bottomed out in Q1 FY12 and
its outlook remains sanguine with INR depreciation being a
major lever followed by increased offshoring and improving
employee pyramid. Valuations remain attractive. Maintain BUY.
Engineering demand remains robust; Service mix improving
Infotech’s key business segments of Engineering and N&CE continue to
perform well. Its key aerospace clients (55% of Engineering business)
continue to involve the company in long term design/engineering
programs. On the other hand, its N&CE business too has transformed
incrementally moving away from its low-end services. Focused
approach towards top clients, proven delivery (strong referrals) and
high renewal rates adds to the comfort.
Margins likely to have bottomed out
Implementation of wage hikes, integration of low margin acquisitions
and ramp down in key clients had led to strong margin erosion in
FY11. Going forward, reduced exposure to low margin data conversion
business, higher offshoring in key subsidiaries and improving employee
mix along with a weak rupee are expected to expand margin.
Valuations provide an attractive entry point
Infotech’s revenue traction has been consistent in past 6-8 quarters as
it continued to benefit from its well entrenched position as an
engineering services provider for its top clients. OPM which was a
concern over FY11 has shown decent improvement in Q2 FY12 and
should improve going forward. Sustained demand in Engineering
segment (70% of total revenues), improving N&CE segment and
protected margin makes us positive on the company. We incorporate
weaker rupee assumptions in our estimates and maintain BUY
Valuations provide an attractive entry point
Infotech Enterprises has been registering decent revenue growth
supported by sustained demand from its Engineering and N&CE
clientele as well as inorganic traction (primarily Daxcon and Wellsco).
We expect decent traction from the Engineering business largely due
to continued spending by larger clients as well as long term nature of
contracts signed by the company. Its N&CE business too is shaping up
well both due bottoming out of key client (post ramp downs) as well as
improving services mix. OPM too should improve as its key subsidiaries
improve profitability through increased offshoring, stabilizing
businesses as well as SG&A leverage. Rupee depreciation continues to
be a strong lever for the industry and Infotech is no exception.
Increased hedging (from ~US$85mn in Q2 FY12 to ~US$150mn
currently) at higher rates to further benefit the company in FY13/14.
We estimate the company to post 16% dollar revenue CAGR over
FY11-13E with earnings growing faster at 18% CAGR. At 6.7x FY13E
earnings we believe, valuations provide an attractive entry. Maintain
BUY with a 9-month TP of Rs155.
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